## _cr16392 ## Source details **Canonical URL:** [_cr16392](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16392.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16392.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16392.pdf.json) --- ### EXECUTIVE SUMMARY - Context and Request - Recovery from the Ebola epidemic delayed by the persistent impact of the commodity price decline and the United Nations Mission in Liberia (UNMIL) withdrawal. - Weak economic activity—particularly in the natural resource sector—affecting government revenues; spending under pressure from the cost of elections and security handover from UNMIL. - Authorities request: - Waivers of nonobservance of performance criteria for completion of the fifth and sixth reviews. - Augmentation of access of 10.7 percent of quota (about US$39 million), of which 5 percent of quota (US$18 million) would be directed to the government budget. - Extension of the ECF until November 18, 2017. - Key Risks - Immediate: worsening of security post-UNMIL withdrawal, particularly in the run-up to elections. - Health: further Ebola cases could undermine confidence and activity. - Other risks: weaker-than-expected commodity markets undermining revenues; worsened macroeconomic outlook and borrowing pressures increasing debt risks; financial sector vulnerabilities including loss of correspondent banking relationships. - Policy Recommendations (summary) - Maintain fiscal discipline in the run-up to elections and accelerate fiscal reforms, especially public financial management. - Build external buffers via CBL three-year financial plan while allowing exchange rate flexibility. - Prioritize grant and highly concessional financing and limit new external government borrowing to maintain debt sustainability. - Program Performance (selected) - Missed end-December 2015 PCs: government revenue and net CBL foreign exchange position. - Missed end-June 2016 PCs: government revenue, net CBL foreign exchange position, and gross direct credit to the government. - Structural benchmarks: two out of nine SBs for the fifth review met; three completed with delay. Three out of five SBs for the sixth review met. - Authorities justify extension and access augmentation by exogenous commodity price shock and corrective actions implemented. ### MACROECONOMIC OUTLOOK AND PROJECTIONS - Near-term/key projections (selected) - Real GDP: 2016: -0.5 percent; 2017: 3.2 percent; 2018: 5.2 percent; 2019: 5.7 percent; 2020: 6.0 percent; 2021: 6.6 percent. - Inflation (annual average): 2016: 8.7 percent; 2017: 9.7 percent; 2018: 8.1 percent; 2019: 7.5 percent; 2020: 7.1 percent; 2021: 7.5 percent. - Exports: projected to fall by 3.6 percent in 2016 relative to 2015. - Current account deficit: projected at 32 percent of GDP in 2016 (stable). - Reserves and CBL position - Gross official reserves: end-2015 US$446 million (2.6 months of imports); end-2016 projected US$469 million (2.9 months). - CBL net foreign exchange position: 2015 US$164 million; projected 2016 US$181 million. - Liberian dollar depreciation: 11.2 percent in first 10 months of 2016 (versus 4.2 percent same period 2015). - MFDP issued a L$6 billion two-year T-bond in first quarter FY2017 (third quarter 2016) to absorb Liberian dollar liquidity; yield about 15 percent. - Quantitative highlights (selected from Text Table 1) - Real GDP (annual percent change): 2014: 0.7; 2015: 0.0; 2016: -0.5; 2017: 3.2; 2018: 5.2; 2019: 5.7; 2020: 6.0; 2021: 6.6. - Consumer prices (annual average): 2014: 9.9; 2015: 7.7; 2016: 8.7; 2017: 9.7; 2018: 8.1; 2019: 7.5; 2020: 7.1; 2021: 7.5. - Gross official reserves (millions of U.S. dollars): 2014: 411; 2015: 446; 2016: 469; 2017: 501; 2018: 528; 2019: 566; 2020: 566; 2021: 626. - CBL's net foreign exchange position (millions of U.S. dollars): 2014: 179; 2015: 164; 2016: 181; 2017: 192; 2018: 219; 2019: 272; 2020: 382; 2021: 442. - Current account balance, including grants (percent of GDP): 2014: -26.9; 2015: -32.2; 2016: -31.8; 2017: -28.2; 2018: -24.4; 2019: -23.4; 2020: -22.7; 2021: -22.5. ### FISCAL PERFORMANCE, FY2016 OUTTURN, AND FY2017 PACKAGE - FY2016 outturn and execution - Domestic revenue: US$453 million (22 percent of GDP), about 4 percent lower than the approved budget. - Government reduced spending by about 10 percent compared with FY2015 spending based on an austerity draft revised budget (never approved by the Legislature). - Budget deficit (commitment basis): US$23 million (1 percent of GDP). - Overall fiscal deficit including off-budget project spending: US$87 million (4.2 percent of GDP). - FY2017 risks and financing - Projected reduction in FY2017 government revenues under unchanged policies: about US$85 million (4 percent of GDP) compared to projections at time of fourth review. - One-off exceptional spending in FY2017: US$30 million (US$22 million elections; US$8 million security handover). - Expected donor budget support declines from US$96 million (4.6 percent of GDP) in FY2016 to US$50 million (2.3 percent of GDP) in FY2017 — drop of US$46 million compared to the average of last four fiscal years. - Revised fiscal plans envisage a government deficit of US$27 million (1.2 percent of GDP) to be reflected in a supplementary budget planned for January 2017 session. - Overall fiscal deficit including off-budget items projected to rise from 4.2 percent of GDP in FY2016 to 8.5 percent of GDP in FY2017 due to stepped-up execution of delayed Ebola-related and infrastructural spending. - Comprehensive fiscal package - Total policy adjustment estimated at about US$93 million or 4.2 percent of GDP (revenue effort plus expenditure cuts from inflation-adjusted FY2016 original budget levels). - Fiscal shock (revenue shortfall and exceptional spending): US$115 million. - Revenue measures: total US$63 million (3 percent of GDP) annualized; legislative measures (US$33 million) include: - Increase in GST: US$20 million. - Additional excises on tobacco, alcohol and non-alcohol beverages; international outbound call excise and GSM excise: US$12 million. - Increase in real estate tax: US$0.5 million. - Administrative fuel storage surcharge applied by LPRC from January 2016: US$30 million (30 US cent per gallon increase); timing yields US$51 million in FY2017 (2.3 percentage points of GDP). - Spending measures: Cabinet-approved austerity and November 2016 additional cuts about US$11 million; total spending adjustment US$38 million relative to original FY2016 budget. - Exceptional budget support and gap - IMF ECF augmentation first installment requested: US$18 million (5 percent of quota). - World Bank additional budget support grant: US$20 million (including US$8 million from the Crisis Response Window). - IMF and World Bank exceptional support would fill remaining FY2017 financing gap of US$38 million. - Even with exceptional assistance, total FY2017 budget support US$86 million still short of FY2016 levels US$96 million. ### PUBLIC FINANCIAL MANAGEMENT, REFORMS, AND PIM FINDINGS - Fiscal reform agenda (highlights) - LRA: introduced desk audit system for large taxpayers; completed sectoral audit manuals; workshops; MoUs with other agencies. - Government reviewing LRC for amendments including natural resource taxation and VAT preparation for 2018 (draft VAT bill under preparation). - Formalization of deferral of social contributions by concessions: government to collect 50 percent of dues and receive deferred contributions starting FY2019 (structural benchmark). - Procurement: PPCC modernized enforcement; structural benchmark to improve timely submission of draft procurement plans to 50 percent of ministries/agencies (structural benchmark). - Treasury Single Account (TSA): MFDP preparing strategy paper and TWG with MFDP, CBL, and commercial banks. - SOEs: MFDP publishing quarterly report of 13 largest SOEs to be expanded to include below-the-line information by end-FY2017 (ongoing structural benchmark). - Public Investment Management Assessment (PIMA) — key weaknesses and seven high-priority recommendations for 2016–17 - Weaknesses: absence of integrated pipeline of viable projects; poor communication on project execution; absence of integrated project database; ineffective MFDP oversight. - Recommendations include: prepare PIM framework and pipeline; strengthen legal framework; improve project presentation in budget documents; establish comprehensive externally and domestically financed project databases; improve MFDP organizational structure. ### MONETARY POLICY, LIQUIDITY MANAGEMENT, AND CBL ACTIONS - CBL policy actions and plans - Implemented three-year financial plan (prior action for fourth review); aim to strengthen international reserves and reduce operational deficits. - Moderate foreign exchange interventions and allow increased exchange rate flexibility; Liberian dollar projected to depreciate by 12 percent to the US dollar in 2016 compared to 7 percent in 2015. - Institute an Asset and Liability Committee (ALCO) to oversee risk management and balance sheet (structural benchmark for the eighth review). - Issued a two-year L$6 billion bond (September 2016) with yield about 15 percent to absorb Liberian-dollar liquidity. - Liquidity coordination - Liquidity Working Group (LWG) meetings were irregular over summer contributing to sharp Liberian-dollar liquidity fluctuations. - Upgrading of CBL core banking application to Temenos T24 and staff transitions hampered liquidity-framework submissions. - Recommendation: strengthen MFDP-CBL-LRA coordination for liquidity management and inflation containment. ### FINANCIAL SECTOR VULNERABILITIES, FIBLL RESOLUTION, AND SAFETY NET - FIBLL resolution and related exposures - FIBLL market share 4.7 percent of total deposits (about 1 percent of GDP) in 2015; NPLs rose to 70 percent of total loans in FIBLL; insolvent in 2014. - CBL emergency credit to FIBLL: US$12 million in 2014 (fully used by Jan 2016) and additional US$7.3 million in 2016 — total exposure US$19.3 million (about 1 percent of GDP). - CBL resolved FIBLL via Purchase & Assumption (P&A) closing FIBLL in June 2016 and selling most assets/liabilities to a Ghanaian private equity group; buyer envisaged to inject US$18.4 million in GN Bank; CBL absorbed its exposure excluded from P&A. - Staff recommendation had been outright liquidation; authorities pursued P&A. - Mitigating measures agreed - Forensic audit of FIBLL by an internationally reputable firm (interim report to staff is a prior action for fifth and sixth reviews); final audit to be shared and transmitted to judicial authorities (structural benchmark). - Buyers committed to correct capital shortfalls per P&A agreement. - Special monitoring: monthly GN Bank FSIs reporting and quarterly financial statements to the Fund. - Safety net architecture and reforms (CBL work program) - Develop procedures for an emergency liquidity assistance (ELA) framework (structural benchmark). - Develop a special resolution regime enabling takeover and transfer of assets/liabilities without shareholders’ approval or court involvement. - Design a deposit insurance scheme aligned with international good practices. - Governance actions at the CBL: legal amendments to align CBL Act, strengthen internal audit, enhance oversight, and establish ALCO. - NPLs and recovery - NPLs to total loans declined to 13.5 percent in August 2016 from 19.2 percent in August 2015 (largely due to write-off of FIBLL NPLs and loan recoveries). - CBL measures: resumption of “name and shame” initiative (October 2016); enforcement of mandatory write-offs of fully provisioned recoverable legacy NPLs. - Staff: NPL write-offs should be enforced via existing prudential regulations. - AML/CFT and correspondent banking pressures - Dedicated AML/CFT supervision unit established at CBL; working with FIU to address gaps including terrorist financing and illicit trafficking criminalization. - Concern: withdrawal of correspondent banks impacting trade finance, remittances, humanitarian aid, and financial inclusion. ### EXTERNAL SECTOR, BORROWING PROGRAM, AND DEBT SUSTAINABILITY - External borrowing program (July 1, 2016 to June 30, 2017) — key figures (USD million / Percent) - Total ratification envelope: 250 / 100 ; PV terms: 136 / 100. - Concessional debt: 198 / 79 ; PV 99 / 73. - Multilateral: 181 / 72 ; PV 88 / 65. - Bilateral: 17 / 7 ; PV 11 / 8. - Non-concessional (semi-concessional): 52 / 21 ; PV 37 / 27. - Uses: Infrastructure: 211 / 84 ; PV 119 / 87. Social spending: 39 / 16 ; PV 17 / 13. - Type of new external debt (Millions of U.S. dollars) - Fixed interest rate: 250. - USD denominated loans: 33. - Loans denominated in other currency: 217. - Debt sustainability assessment (DSA) conclusions - Liberia’s risk of debt distress: moderate (moved from low to moderate in 2015); DSA shows current rating remains moderate but close to high due to debt-to-export ratios near thresholds. - External DSA baseline: - PV of debt-to-GDP projected to increase from 18 percent in FY2016 to 23 percent in FY2020, then decline. - PV of debt-to-exports projected to rise from 54 percent in FY2016 to a peak of 99 percent in FY2019 (close to 100 percent threshold). - Extreme shock scenarios show breaches of thresholds around FY2018–19. - Authorities commit to limit pace of external borrowing, prioritize concessional/grant financing, and respect ECF debt limits as guidance. - Public and external debt stock (end-September 2016) - Total debt stock: 597 Millions of US dollar (Percent of Total: 100). - By creditors: Multilateral including IMF: 565 (95); World Bank: 239 (40); AfDB: 63 (11); Bilateral: 33 (5). ### PROGRAM REQUESTS, WAIVERS, AUGMENTATION, AND MONITORING - Prior actions for completing fifth and sixth reviews (conditional) - Complete development of database to cover all domestically financed projects. - Provide interim report of forensic audit conducted by KPMG. - Waivers requested for missed performance criteria - Missed revenue floors (end-December 2015 and end-June 2016): corrective actions include FY2017 revenue package and revenue administration reforms; missed revenue PC driven by commodity price shock and fall in iron ore price. - Missed CBL net foreign exchange position (end-December 2015 and end-June 2016): deviations due to support to FIBLL and external shock; corrective actions include implementation of three-year financial plan, limited market interventions, and closure of FIBLL. - Missed CBL gross credit to government (end-June 2016): minor deviation — waiver justified. - Augmentation of access and on-lending - Requested total augmentation 10.7 percent of quota (~US$39 million); first installment US$18 million to budget support; remaining two installments US$21 million across 2017 reviews. - First installment US$18 million plus World Bank Crisis Response Window and other donor financing would close US$38 million BOP gap in 2016. - Memorandum of Understanding between MFDP and CBL to structure on-lending of augmentation installment. - Extension objectives and monitoring through November 2017 - Extension to allow completion and deepening of ECF-supported program and serve as macro anchor pre-election. - Key policy focus: execute FY2017 budget; prepare FY2018 budget; complete PFM reforms including missed SBs; formalize concession social contribution deferrals; accumulate FX buffers; implement CBL three-year plan; advance ELA/SRR/deposit insurance frameworks; complete and publish forensic audit of FIBLL. - Performance monitored by PCs, indicative targets, and SBs up to November 2017. ### STAFF APPRAISAL, RISKS, AND PRIORITIES - Staff appraisal - Staff supports completion of fifth and sixth reviews and authorities’ requests for waivers, augmentation of ECF access, and extension, based on authorities’ commitments and corrective measures. - Program risks (selected and likelihood) - External: significant slowdown in China/EMs leading to lower commodity prices — Likelihood: Medium. - Correspondent banking withdrawal — Likelihood: High. - Domestic: large-scale Ebola re-emergence — Likelihood: Low; deterioration of security post-UNMIL — Likelihood: Medium. - Weak policy implementation and increasing debt distress — Likelihood: High. - Staff priorities and recommendations (selected) - Continue fiscal consolidation and rationalize current spending (wage bill and transfers). - Deepen domestic revenue mobilization, notably launch VAT. - Accelerate structural fiscal reforms: TSA, investment management, SOE monitoring, procurement, budget processes. - Rebuild external buffers: rigorously implement three-year financial plan; limit interventions and allow exchange rate adjustment to fundamentals. - Strengthen MFDP-CBL-LRA coordination for liquidity management and inflation containment. - Implement ELA, bank resolution, and deposit insurance frameworks; complete and publish forensic audit of FIBLL; strengthen CBL transparency, accountability, and governance. ### RISK ASSESSMENT MATRIX (RAM) — SELECTED MITIGATIONS - External risks mitigation - Accumulate international reserve buffers. - Diversify economy and export markets. - Seek additional financing and prioritize expenditures to offset revenue shortfalls. - Domestic risks mitigation - Strengthen health and social protection systems; ensure smooth UNMIL transition. - Improve banking sector profitability; accelerate NPL removal; set up bank resolution framework. - Front-load policy implementation and maintain IMF engagement. - Prioritize public projects financed by grants and concessional financing. ### MONITORING, REPORTING, AND DATA REQUIREMENTS - Quantitative performance criteria set for end-December 2016 and end-June 2017; definitions for government revenue, CBL net foreign exchange position, gross external borrowing, and other program variables are specified. - Reporting obligations (selected) - MFDP: monthly fiscal reconciliation and detailed monthly reports within three weeks after month-end; quarterly SOE financial operations within 45 days after quarter-end. - CBL: monthly monetary survey and balance sheet; monthly and weekly FX sales/purchase reports; monthly liquidity forecasts within six weeks after month-end; high-frequency GN Bank FSIs reporting up to June 2017. - Data and statistics - Progress noted on national accounts, CPI revision, and customs-based trade dataset using ASYCUDA. - STA and AFRITAC West support ongoing to improve GDP, CPI, MFS, ESS, and GFS. *Source: IMF staff report, December 1, 2016.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and Request - Recovery from the Ebola epidemic is delayed by the persistent impact of the commodity price decline and the United Nations Mission in Liberia (UNMIL) withdrawal. - Weak economic activity—particularly in the natural resource sector—is affecting government revenues, while spending is under pressure from the cost of elections and security handover from UNMIL. - The Liberian authorities request: - Waivers of nonobservance of performance criteria for the completion of the fifth and sixth reviews. - Augmentation of access of 10.7 percent of quota (about US$39 million), of which 5 percent of quota would be directed to the government budget. - Extension of the ECF until November 18, 2017. ### Key Risks - The most immediate risk is the worsening of security post-UNMIL withdrawal, particularly in the run-up to the elections. - More Ebola cases—even if small-scale—would further undermine confidence and activity. - Other risks noted: - Weaker-than-expected market conditions for commodities could undermine government revenues and force expenditure cuts that crowd out priority social spending. - Worsened macroeconomic outlook, high investment needs, and borrowing pressures increase debt risks. - Increasing financial sector vulnerabilities, including a further loss of correspondent banking relationships, could undermine the sector’s contribution to recovery. ### Policy Recommendations - Maintain fiscal discipline in the run-up to the elections and accelerate fiscal reforms, especially in public financial management. - Build external buffers, including through the three-year financial plan of the Central Bank of Liberia, while allowing for adequate exchange rate flexibility. - Prioritize grant and highly concessional financing and limit new external government borrowing to maintain debt sustainability. ### Program Performance and Requests Justification - Program performance: - Two end-December 2015 performance criteria (PCs) were missed: government revenue and net CBL foreign exchange position. - Three end-June 2016 PCs were missed: government revenue, net CBL foreign exchange position and gross direct credit to the government. - Two out of nine structural benchmarks (SBs) for the fifth review were met; three were completed with delay. - Three out of five SBs for the sixth review were met. - The authorities justify the extension of the ECF and access augmentation by the exogenous nature of the commodity price shock and the implementation of corrective actions in fiscal, monetary, and financial sectors. ### Recent Developments and Institutional Context - Elections and security transition: - Liberia is preparing for October 2017 presidential and general elections; a new president will take office in January 2018. - Security was transferred from UNMIL to national authorities in June 2016; UN Security Council extended UNMIL by three months in September 2016 for up to some 1,800 personnel in Monrovia. - Political developments affected parliamentary activity: the Sable Mining corruption case led to the House Speaker’s resignation and delayed parliamentary proceedings; the FY2017 budget was approved at the end of September. - Leadership transitions: - Minister Kamara (previously Deputy Governor of CBL) became head of MFDP after Minister Konneh resigned. - Governor Weeks was appointed in May following the expiration of Governor Mills Jones’ term. - Ebola status: WHO declared Liberia Ebola-Free for the third time on June 9, 2016. - Banking sector event: CBL resolved First International Bank of Liberia Ltd (FIBLL), to which it had extended an emergency credit of over US$19 million, via a Purchase and Assumption (P&A) operation selling most of FIBLL’s balance sheet to a foreign private equity group; this raised concerns over possible further CBL exposure to the successor bank. ### Macroeconomic Outlook and Projections - Near-term performance: - Real GDP is projected to contract by 0.5 percent in 2016. - Private sector credit is projected to contract in real terms in 2016. - Inflation rose to 9.9 percent in August; average inflation for 2016 is projected at 8.7 percent. - Exports are projected to fall by 3.6 percent in 2016 relative to 2015. - Current account deficit is projected to remain stable at 32 percent of GDP in 2016. - Reserves and central bank position: - Gross official reserves projected to increase from US$446 million at end-2015 (2.6 months of imports) to US$469 million at end-2016 (2.9 months of imports). - CBL’s net foreign exchange position projected to pick up from US$164 million to US$181 million in 2016. - Exchange rate and monetary actions: - Liberian dollar depreciated by 11.2 percent in the first 10 months of 2016 compared to 4.2 percent in the same period in 2015. - MFDP issued a L$6 billion (about US$64 million) two-year T-bond in the first quarter of FY2017 (third quarter of 2016) to absorb Liberian dollar liquidity. - Medium-term growth outlook: - Growth projected to rebound to 3.2 percent in 2017, driven by expansion in commercial gold production and agriculture (LATA), despite stagnant rubber production. - Medium-term growth of about 6 percent, still below the pre-Ebola 10-year average of over 7 percent, driven by rebound in mining activity and improved electricity availability including Mount Coffee hydropower plant expected to come on stream by end-2016. ### Quantitative Highlights (selected from Text Table 1) - Real GDP (annual percent change): 2014: 0.7, 2015: 0.0, 2016: -0.5, 2017: 3.2, 2018: 5.2, 2019: 5.7, 2020: 6.0, 2021: 6.6. - Consumer prices (annual average): 2014: 9.9, 2015: 7.7, 2016: 8.7, 2017: 9.7, 2018: 8.1, 2019: 7.5, 2020: 7.1, 2021: 7.5. - Total revenue and grants (percent of GDP, fiscal year): 2014: 27.4, 2015: 32.5, 2016: 31.4, 2017: 30.9, 2018: 27.6, 2019: 27.0, 2020: 27.6, 2021: 28.2. - Total expenditure and net lending (percent of GDP, fiscal year): 2014: 29.3, 2015: 40.9, 2016: 35.6, 2017: 39.4, 2018: 33.6, 2019: 31.5, 2020: 31.0, 2021: 31.4. - Overall fiscal balance, including grants (percent of GDP): 2014: -1.9, 2015: -8.4, 2016: -4.2, 2017: -8.5, 2018: -6.0, 2019: -4.5, 2020: -3.4, 2021: -3.2. - Public external debt (percent of GDP): 2014: 13.2, 2015: 23.0, 2016: 28.0, 2017: 33.6, 2018: 37.4, 2019: 38.1, 2020: 37.5, 2021: 36.8. - Credit to private sector (annual change): 2014: 5.6, 2015: 8.1, 2016: 9.0, 2017: 7.6, 2018: 10.2, 2019: 11.7, 2020: 13.7, 2021: 13.1. - Current account balance, including grants (percent of GDP): 2014: -26.9, 2015: -32.2, 2016: -31.8, 2017: -28.2, 2018: -24.4, 2019: -23.4, 2020: -22.7, 2021: -22.5. - Gross official reserves (millions of U.S. dollars): 2014: 411, 2015: 446, 2016: 469, 2017: 501, 2018: 528, 2019: 566, 2020: 566, 2021: 626. - Months of imports of goods and services (excluding UNMIL and FDI project imports): 2014: 2, 2015: 2.5, 2016: 2.6, 2017: 2.9, 2018: 3.2, 2019: 3.2, 2020: 3.3, 2021: 3.2. - CBL's net foreign exchange position (millions of U.S. dollars): 2014: 179, 2015: 164, 2016: 181, 2017: 192, 2018: 219, 2019: 272, 2020: 382, 2021: 442. - Terms of trade (annual percent change): 2014: -10.7, 2015: -26.4. ### Corrective Actions and Reforms - Government measures: - Implemented a revenue package for FY2017 and additional measures in November 2016. - Advanced revenue administration reforms to improve tax compliance and capacity of the Liberia Revenue Authorities (LRA), with Fund and donor support. - Central Bank of Liberia (CBL) measures: - Strengthened international reserves through the implementation of the three-year financial plan and limited market interventions in the first half of 2016. - Agreed on measures to strengthen resolution of FIBLL and put the successor bank on a stronger footing. *Source: IMF staff report, December 1, 2016.* ### 16. The government under executed ### 16. The government under executed ### FY2016 outturn and budget execution - Domestic revenue was US$453 million (22 percent of GDP), about 4 percent lower than the approved budget. - Government reduced spending by about 10 percent compared with FY2015 spending based on an austerity draft revised budget (never approved by the Legislature). - Budget deficit: US$23 million (1 percent of GDP). - Overall fiscal deficit, including off-budget project spending: US$87 million (4.2 percent of GDP). ### Fiscal pressures and FY2017 risks - Projected reduction in FY2017 government revenues on unchanged policies due to weak natural resource sector: about US$85 million (4 percent of GDP) compared to projections at the time of the fourth review. - One-off exceptional spending in FY2017: US$30 million (US$22 million related to elections; US$8 million related to security handover from UNMIL). - Expected donor budget support (excluding Fund augmentation and World Bank support) declines from US$96 million (4.6 percent of GDP) in FY2016 to US$50 million (2.3 percent of GDP) in FY2017 — a drop of US$46 million compared to the average of the last four fiscal years. - Downward revision of economic growth in 2016–17 and delay in budget approval expected to reduce FY2017 revenues by US$37 million compared to the budget. ### Approved FY2017 budget and revised plans (Text Table 2 highlights) - Legislature-approved FY2017 budget: US$600 million. - Domestic tax, non-tax revenues, and deposit financing sources: US$532 million. - External budget support (including expected Fund augmentation): US$68 million. - Selected figures from Text Table 2 (Millions of U.S. dollars): - Outturn (FY2016) Revenue and grants: 521; Revenue: 453; Tax: 402; Non-tax: 51; Grants: 68. - Baseline (FY2017) Revenue and grants: 485; Revenue: 435; Tax: 386; Non-tax: 49; Grants: 50. - No-policy Scenario Revenue and grants: 549; Revenue: 499. - Expenditure (FY2016 outturn): 544; Current: 492; Capital: 52. - Expenditure (FY2017 Baseline): 618; Current: 577; Capital: 42. - Exceptional spending (current): 30 (both outturn and baseline lines list 30). - Budget balance: -23 (Outturn); -133 (No-policy); -27 (Budget Projection/Baseline). - Financing gap (+ surplus, -: deficit): 15 (Outturn); -146 (No-policy); -38 (Budget Projection). - ECF augmentation (5 percent of quota): 18. - World Bank additional budget support: 20. - Total shock (revenue shortfall and exceptional spending): 115. - Total adjustment (revenue and spending measures; = (1) + (2) + (3) + (4)): -93. - Overall balance, including off-budget activities: -87 (FY2016); -185 (FY2017 scenarios shown). - Public investment financed by loans (of which): -115 (Outturn); 41; 54 (other scenario columns). - Nominal GDP (Millions of U.S. dollars): 2080 (FY2016); 2183 (FY2017 baseline); 2183 (No-policy/Budget Projection column shows 2183). - Revised fiscal plans envisage a government deficit of US$27 million (1.2 percent of GDP) to be reflected in a supplementary budget planned for the January 2017 parliamentary session. - Overall fiscal deficit (including domestically- and externally-financed off-budget items) projected to rise from 4.2 percent of GDP in FY2016 to 8.5 percent of GDP in FY2017 due to stepped-up execution of delayed Ebola-related and infrastructural spending financed through drawdown of unused external grants and domestic loans. ### Comprehensive fiscal package for FY2017 - Total policy adjustment estimated at about US$93 million or 4.2 percent of GDP (revenue effort plus expenditure cuts from inflation-adjusted FY2016 original budget levels). - Fiscal shock (revenue shortfall and exceptional spending) estimated at US$115 million. Revenue measures - Total revenue measures for a total of US$63 million (3 percent of GDP) on an annual basis. - Measures approved by the Legislature as amendments to the Liberia Revenue Code (LRC), total US$33 million: - Increase in the General Sales Tax (GST): US$20 million. - Additional excises on tobacco, alcohol and non-alcohol beverages; introduction of an international outbound call excise and GSM excise: US$12 million. - Increase in real estate tax: US$0.5 million. - Administrative fuel storage surcharge applied by LPRC starting January 2016: US$30 million (30 US cent per gallon increase). - Taking implementation timing into account, yield of all these measures in FY2017 would amount to US$51 million or 2.3 percentage points of GDP. Spending measures - Cabinet-approved austerity measures (June 2016) included: reducing consultant services; freezing new hiring (except in education, health, and security); limiting official travel, printing and publication; and reducing purchases and maintenance of vehicles. - Investment under domestically-financed PSIP limited to existing projects. - November 2016 measures: additional cuts of about 4 percent from the budget expenditure ceiling (about US$11 million) in goods and services, subsidy and transfers, and capital spending. - Total spending adjustment compared with expenditure plan under the original FY2016 budget: US$38 million. ### Exceptional budget support and financing gap - IMF ECF access augmentation first installment requested by authorities: US$18 million (5 percent of quota). - World Bank additional budget support grant: US$20 million (including US$8 million from the Crisis Response Window) delivered through a Development Policy Operation. - IMF and World Bank exceptional budget support would fill the remaining financing gap of US$38 million in FY2017. - Even with exceptional assistance, total FY2017 budget support of US$86 million would still fall short of FY2016 levels of US$96 million. ### FY2018 stance - Authorities plan to maintain a tight fiscal stance in FY2018, keeping overall spending envelope constant in nominal terms. - External budget support expected to remain limited; government will still need to finance some exceptional spending for elections and security. - Higher revenues from rebound in economic activity and ongoing revenue administration reform expected to compensate expected decline in external assistance. ### Fiscal reform agenda (C. Fiscal Reform) - Tax policy and administration: - LRA achievements: introduced desk audit system for large taxpayers; completed sectorial audit manuals; provided workshops to taxpayers; signed Memorandum of Understanding with other government agencies such as Liberia Anti-Corruption Commission. - Government reviewing the LRC for further amendments including natural resource taxation, consistency between tax code and non-tax revenue, regional tariff harmonization, and simplification to avoid ambiguity. - Government preparing for VAT implementation in 2018; a draft VAT bill is under preparation. - Natural resource taxation: - Formalizing deferral of social contributions by concessions to replace informal agreement; government to collect 50 percent of the dues and receive deferred contributions starting in FY2019 (structural benchmark). - Procurement: - PPCC modernized and stepped up enforcement; rolled out pre-qualification of bidders; launched standardization of procurement contracts and pre-approval framework. - PPCC aims to improve timely submission of draft procurement plans for the FY2018 budget to 50 percent of ministries and agencies receiving budget allocations (structural benchmark). - Public investment management: - Establishment of domestically-financed public investment database and expansion of externally-financed database have lagged. - Completion of domestically-financed project database is a prior action; expansion of externally-financed project database is a structural benchmark for December. - MFPD preparing an action plan to implement recommendations of the 2016 Public Investment Management Assessment (PIMA). - Treasury Single Account (TSA): - MFDP preparing a strategy paper for extension of the TSA; envisages a technical working group (MFDP, CBL, commercial banks) to agree on a memorandum of understanding on TSA operations. - State-Owned Enterprises (SOEs): - MFDP committed to improve transparency and financial control of SOEs. - MFDP publishing a quarterly report of 13 largest SOEs, to be expanded to include below-the-line information by end-FY2017 (ongoing structural benchmark). - Public Financial Management (PFM) strategy: - MFDP updating PFM reform strategy to cover FY2017–19 reflecting 2016 PEFA and 2016 PIMA findings. - PFM Act being amended based on Fund recommendations. ### Public Investment Management Assessment (Box 1) — key findings and recommendations - FAD PIM Assessment (July 2016) conclusion: overall PIM performance in Liberia is in line with comparable low-income countries. - PIM weaknesses: - Absence of an integrated pipeline of projects for domestic or external funding that have passed tests of economic and social viability. - Poor communication on project execution between ministries/agencies and MFDP. - Absence of an integrated database of planned and ongoing public investment projects. - Recently established but largely ineffective MFDP oversight role. - Seven high-priority recommendations for 2016–17: - Prepare a framework paper on the PIM cycle which develops a pipeline of sector projects. - Strengthen the legal framework for PIM. - Improve the presentation of development projects in annual budget documents. - Establish and enforce rules for prioritizing PSIP projects and the payment of counterparty funds in issuing allotments for budget execution. - Establish a comprehensive database of externally and domestically financed projects. - Improve the organizational structure of the MFDP. - Prepare an inventory of all documents/reports relating to preparation, appraisal, evaluation, and execution of public investment projects submitted to or generated within the MFDP. ### Monetary and exchange rate policy - CBL improved its foreign exchange position despite lower government FX sales in first half of 2016. - Authorities committed to increase external buffers to above three months of imports. - CBL intended actions: - Implement the three-year financial plan launched December 2015 (prior action for the fourth review). The projected deficit in 2016 is US$2.1 million (13 percent) higher than planned due mainly to unbudgeted banknote printing cost of US$3.9 million out of a total US$5.2 million. - Moderate foreign exchange interventions and allow increased exchange rate flexibility; Liberian dollar projected to depreciate by 12 percent to the US dollar in 2016 compared to 7 percent in 2015. - Institute an Asset and Liability Committee (ALCO) to oversee risk management, balance sheet, and financial performance (structural benchmark for the eighth review). ### Liquidity management coordination - Coordination between MFDP, CBL, and LRA is crucial given high dollarization and large lump-sum external assistance inflows. - Liquidity Working Group (LWG) meetings were irregular over the summer, contributing to sharp fluctuations in Liberian dollar liquidity. - Upgrading of CBL’s core banking application to Temenos 24 and staff transitions hampered submissions to liquidity framework. - September 2016 issuance of a two-year, L$6 billion bond by the CBL on behalf of MFDP with a yield of about 15 percent (well above average 3 percent Treasury bill yields). ### Financial sector vulnerabilities and FIBLL resolution - FIBLL (medium-sized bank) had market share of 4.7 percent of total deposits (about 1 percent of GDP) in 2015; NPLs rose to 70 percent of total loans; insolvency in 2014. - CBL extended an uncollateralized line of credit of US$12 million in 2014 (fully used by January 2016) and an additional US$7.3 million in 2016 — total exposure US$19.3 million (about 1 percent of GDP). - CBL decided to resolve FIBLL with Fund support due to rising exposure and lack of collateral and absence of an emergency liquidity assistance framework. - CBL pursued a Purchase & Assumption (P&A) resolution: closed FIBLL in June 2016 and sold most assets and liabilities to a Ghanaian private equity group through a P&A transaction; buyer envisaged to inject US$18.4 million in successor bank, GN Bank; CBL absorbed all its exposure which was excluded from the P&A arrangement. - Staff had recommended outright liquidation due to concerns about future open bank assistance risks, losses, ambitious buyer business plan, limited buyer banking track record, and challenging economic environment. - Measures agreed to mitigate resolution concerns and minimize risks to CBL: - Forensic audit of FIBLL covering causes of losses and CBL supervision, conducted by an internationally reputable firm, with an interim report to staff (prior action for the fifth and sixth ECF review); authorities to share final audit report with Fund staff and transmit results to relevant judicial authorities (structural benchmark), and committed to publishing the audit’s findings. - Commitment by buyers to promptly correct any capital shortcoming as outlined in the P&A agreement. - Special monitoring of the bank with monthly GN Bank Financial Soundness Indicators (FSIs) reporting and quarterly financial statements to the Fund. *Source: Liberian authorities; and IMF staff estimates and projections.* ### 30. The CBL is also moving to address the gaps in the safety net architecture exposed by ### _cr16392 - 30. The CBL is also moving to address the gaps in the safety net architecture exposed by ### Safety net architecture and financial sector reforms - The CBL, with technical assistance from the Fund, is working on: - (i) procedures for an emergency liquidity assistance (ELA) framework (structural benchmark) in addition to recently issued revised regulations for a standing credit facility and minimum reserve requirements; - (ii) a special resolution regime to take over and transfer, without shareholders’ approval or involvement of the courts, assets and liabilities of a failing bank to an authorized institution; - (iii) a deposit insurance scheme, designed in accordance with international good practices, to offer depositors more meaningful protection against potential banking system distress. - Recommended governance and control actions at the CBL include legal amendments to align the CBL Act with best practices, strengthening the internal audit function, enhancing audit and control oversight, and establishing an ALCO. ### Nonperforming loans (NPLs) and credit recovery - NPLs to total loans declined to 13.5 percent in August 2016 from 19.2 percent in August 2015. - The decline is largely attributed to write-off of FIBLL NPLs, recovery of lending post-Ebola, and restructuring of some loans. - CBL measures to reduce NPLs include: - Resumption of the “name and shame” initiative in October 2016 (publishing names of noncompliant delinquent borrowers in the press). - Enforcement of the regulation on mandatory write-offs of fully provisioned recoverable legacy NPLs. - Staff recommendation: NPL write-offs should be more appropriately achieved through enforcement of existing prudential regulations. ### Supervision, AML/CFT, and correspondent banking pressures - The CBL has established a dedicated AML/CFT supervision unit. - The CBL is working closely with the Financial Intelligence Unit (FIU) to address gaps in financing of terrorist activities and criminalization of illicit trafficking of goods. - Mindful that withdrawal of correspondent banks is impacting trade finance, remittances, humanitarian aid, and financial inclusion, the CBL is enhancing supervision and AML/CFT regulations. ### External sector, debt distress, and borrowing limits - Liberia’s risk of debt distress moved from low to moderate in 2015; the DSA shows the current risk rating remains moderate but is close to high, especially because of debt-to-export ratios close to the threshold. - Authorities committed to limit the pace of external borrowing. - FY2016: government signed US$150 million in new loans, but as no loan was ratified the PC on the debt limit was met. - FY2017: Legislature ratified new loans for US$155 million, or US$91 million in PV terms, of which US$103 million signed in FY2016. - Program envisages ratification of about additional US$95 million in new loans for FY2017 (including the remainder of the loans signed in FY2016) for a total US$250 million or US$136 million in PV terms. - The total ratification envelope for FY2016-FY2017 of US$136 million in PV terms is lower than projected at the time of the fourth review. ### Summary table of projected external borrowing program (July 1, 2016 to June 30, 2017) — key figures - By sources of debt financing (USD million / Percent): - 250 / 100 ; 136 / 100 - Concessional debt, of which: 198 / 79 ; 99 / 73 - Multilateral debt: 181 / 72 ; 88 / 65 - Bilateral debt: 17 / 7 ; 11 / 8 - Other: 0 / 0 ; 0 / 0 - Non-concessional debt, of which: 52 / 21 ; 37 / 27 - Semi-concessional: 52 / 21 ; 37 / 27 - Commercial terms: 0 / 0 ; 0 / 0 - By creditor type (USD million / Percent): - 250 / 100 ; 136 / 100 - Multilateral: 181 / 72 ; 88 / 65 - Bilateral - Paris Club: 0 / 0 ; 0 / 0 - Bilateral - Non-Paris Club: 69 / 28 ; 48 / 35 - Other: 0 / 0 ; 0 / 0 - Uses of debt financing (USD million / Percent): - 250 / 100 ; 136 / 100 - Infrastructure: 211 / 84 ; 119 / 87 - Social spending: 39 / 16 ; 17 / 13 - Budget financing: 0 / 0 ; 0 / 0 - Other: 0 / 0 ; 0 / 0 - Memo items — Indicative projections: - Year 2: 74 / 34 - Year 3: 71 / 39 ### Type of new external debt (July 1, 2016 to June 30, 2017, Millions of U.S. dollars) - By the type of interest rate: - Fixed interest rate: 250 - Variable interest rate: 0 - Unconventional loans: 0 - By currency: - USD denominated loans: 33 - Loans denominated in other currency: 217 ### Program issues, waivers, and prior actions - Completing the fifth and sixth reviews is conditional on two prior actions: - Complete the development of a database to cover all domestically financed projects. - Provide an interim report of the forensic audit conducted by KPMG. - Authorities requested waivers for nonobservance of program targets: - Missed PC on government revenue for end-December 2015 and end-June 2016: - Revenue shortfall mainly driven by the commodity price shock, particularly the fall of iron ore price. - Corrective actions: (i) a package of revenue measures for the FY2017 budget and additional measures introduced in November 2016 for an annualized total of US$63 million; (ii) ongoing revenue administration reforms to improve tax compliance and capacity of the LRA. - Missed PC on the CBL’s net foreign exchange position for end-December 2015 and end-June 2016: - Deviations due to policy weaknesses, notably support to FIBLL, and impact of the external shock. - Corrective actions: (i) implementation of the three-year financial plan; (ii) limited market interventions in the first half of 2016 to achieve a net foreign exchange position target agreed with staff; (iii) closure of FIBLL in June 2016. - Missed PC on the CBL’s gross credit to the government for end-June 2016: - Waiver would be justified by the minor deviation from the program target. ### Augmentation of access, financing gaps, and on-lending - Requested augmentation of access would help fill balance of payments financing needs in 2016–17. - In 2016: - First installment of the augmentation of US$18 million, directed to budget support, together with additional budget financing (including from the Crisis Response Window of the World Bank), would help close the US$38 million balance of payment gap. - Fund disbursement would be channeled to budget support; a Memorandum of Understanding between the MFDP and the CBL would structure the on-lending of this installment to the budget. - In 2017: - Remaining two installments of the augmentation for US$21 million, together with additional election assistance from other donors for US$7 million, would close the balance of payments gap created by the worsening of export performance. ### Extension objectives and monitoring through November 2017 - Extension would allow completion and deepening of the ECF-supported program and serve as an anchor for macroeconomic stability in the pre-election period. - Key policy focus under extension: - Fiscal policies: execution of the FY2017 budget; preparation of the FY2018 budget to be submitted in April 2017; completion of PFM reform including missed SB on spending and procurement plans for FY2017; formalization of social contribution deferral agreements with concession companies; monitoring of SOEs. - Monetary and exchange rate: continue accumulating foreign exchange buffers; support improvement of the net foreign exchange position via implementation of the three-year budget; advance MFDP-CBL coordination on liquidity management and foreign exchange interventions; establish a structural benchmark on the establishment of an ALCO. - Financial sector: monitor implementation of measures related to the resolution of FIBLL, including conclusion and publication of the forensic audit; advance regulations on ELA, SRR, and deposit insurance. - Performance monitored by performance criteria, indicative targets, and structural benchmarks up to November 2017. ### Staff appraisal, risks, and policy recommendations - CBL and authorities praised for maintaining macroeconomic stability amid a difficult situation; economy has not yet recovered after the Ebola epidemic and faces deeper-than-anticipated impacts from the commodity price shock and the UNMIL withdrawal. - Program performance characterized as mixed; deviations stem from economic challenges and policy choices (notably the FIBLL bail-out impact). - Program risks described as high, including: - Economy: Further deterioration and slow recovery of commodity prices could affect government revenues. - Fiscal: Election-related spending pressures and revenue shortfalls could lead to unsustainable external borrowing or accumulation of arrears; slow PFM reform progress could deter international support. - Monetary/exchange rate/financial system: Higher-than-programmed CBL foreign interventions could undermine reserve accumulation; delay in FIBLL resolution (including forensic audit) would hamper CBL supervisory strengthening. - Key staff recommendations and priorities: - Continue fiscal consolidation and rationalize spending, particularly current items such as the wage bill and transfers. - Deepen domestic revenue mobilization, notably with the launch of the VAT. - Accelerate structural fiscal reforms: prioritize TSA, investment management, SOE monitoring, procurement, and budgetary processes. - Rebuild external buffers: rigorously implement the three-year financial plan; limit interventions to smoothing excessive exchange rate volatility while allowing exchange rate adjustment to fundamentals; refrain from resuming past direct interventions in the economy. - Strengthen MFDP-CBL-LRA coordination for liquidity management and inflation containment, supported by stronger analysis of currency composition of revenues and spending and external inflows. - Implement frameworks for emergency liquidity, bank resolution, and deposit insurance; complete and publish the forensic audit of FIBLL; strengthen CBL transparency, accountability, and governance. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 56. On the basis of the strength of the authorities’ policy commitments and corrective ### _cr16392 - 56. On the basis of the strength of the authorities’ policy commitments and corrective ### Staff recommendation - On the basis of the strength of the authorities’ policy commitments and corrective measures, staff supports the completion of the fifth and sixth reviews and the authorities’ requests for waivers of non-observance of performance criteria, augmentation of ECF access, and extension of the ECF arrangement. ### Real sector projections and key real indicators (2014–21) - Real GDP: 0.7; 0.0; -0.5; 3.2; 5.2; 5.7; 6.0; 6.6 - Agriculture & fisheries: -3.7; 0.7; 6.4; 4.1; 4.2; 4.1; 4.2; 4.1 - Forestry: 2.2; 2.0; -7.0; 3.0; 6.0; 6.0; 6.0; 7.0 - Mining & panning: 3.3; -15.9; -23.8; 5.5; 8.9; 11.9; 25.6 - Manufacturing: -0.7; -1.5; -4.9; 0.0; 4.0; 5.6; 4.7; 4.0 - Services: 2.3; 4.3; 3.9; 2.9; 5.1; 5.4; 4.4; 3.8 - Real GDP excluding mining sector: 0.3; 2.6; 2.6; 3.0; 4.9; 5.1; 4.5; 4.2 - Nominal non-mining per capita GDP (U.S. dollars): 438; 452; 463; 477; 511; 553; 597; 620 - Nominal GDP (millions of U.S. dollars): 2,012; 2,034; 2,112; 2,222; 2,424; 2,727; 2,859; 2,993; 3,226 ### Inflation and population - Consumer prices (annual average): 9.9; 7.7; 8.7; 9.7; 8.1; 7.5; 7.1; 7.5 - Consumer prices (end of period): 7.7; 8.0; 11.3; 8.2; 8.0; 7.0; 7.3; 7.6 - Population (millions): 4.2; 4.3; 4.4; 4.5; 4.6; 4.7; 4.8; 4.9 ### Central government operations (percent of GDP, fiscal year unless indicated) - Total revenue and grants: 27.4; 32.5; 31.4; 30.9; 27.6; 27.0; 27.6; 28.2 - Total revenue: 23.5; 22.5; 21.8; 22.8; 23.1; 24.0; 24.7; 25.4 - Grants, including Ebola-related support: 3.9; 10.0; 9.6; 8.1; 4.5; 3.0; 2.9; 2.8 - Total expenditure and net lending: 29.3; 40.9; 35.6; 39.4; 33.6; 31.5; 31.0; 31.4 - Current expenditure: 24.3; 32.0; 27.8; 28.9; 26.4; 24.1; 23.3; 22.7 - Capital expenditure: 5.0; 8.8; 10.5; 7.8; 7.2; 7.4; 7.7; 8.7 - Overall fiscal balance, including grants: -1.9; -8.4; -4.2; -8.5; -6.0; -4.5; -3.4; -3.2 - Overall fiscal balance, excluding grants: -5.8; -18.4; -13.8; -16.6; -10.5; -7.5; -6.3; -6.0 - Public external debt: 13.2; 23.0; 28.0; 33.6; 37.4; 38.1; 37.5; 36.8 - Central government domestic debt: 14.1; 14.6; 12.9; 16.8; 16.1; 11.4; 9.7; 8.6 ### Monetary and credit indicators - M2/GDP: 34.6; 34.8; 33.6; 33.4; 32.7; 32.2; 31.6; 31.2 - Credit to private sector (percent of GDP): 18.8; 20.1; 21.1; 21.6; 21.8; 22.0; 22.4; 23.5 - Credit to private sector (annual percent change): 5.6; 8.1; 9.0; 7.6; 10.2; 11.7; 13.7; 13.1 ### External sector (percent of GDP unless otherwise indicated) - Current account balance including grants: -26.9; -32.2; -31.8; -28.2; -24.4; -23.4; -22.7; -22.5 - Current account balance excluding grants: -89.5; -87.4; -77.6; -54.6; -49.6; -46.5; -43.7; -40.2 - Trade balance: -31.7; -44.8; -41.6; -34.5; -29.3; -29.5; -24.2; -22.0 - Exports: 22.6; 12.5; 11.6; 10.6; 11.0; 11.2; 11.8; 13.0 - Imports: -54.3; -57.2; -53.2; -45.1; -40.3; -40.7; -36.0; -34.9 - Grants (donor transfers, net): 62.6; 55.2; 47.7; 27.7; 25.2; 23.1; 21.0; 17.7 - Gross official reserves (millions of U.S. dollars): 411; 446; 469; 501; 528; 566; 566; 626 - Months of imports of goods and services: 2.5; 2.6; 2.9; 3.2; 3.2; 3.3; 3.2; 3.3 - CBL's net foreign exchange position (millions of U.S. dollars): 179; 164; 181; 192; 219; 272; 382; 442 - Terms of Trade (annual percent change): -10.7; -26.4; 5.6; -14.3; -12.3; 1.2; 1.0; 1.1 - Iron ore price (US$ per metric ton): 975; 554; 484; 336; 363; 36 - Gold (US$ per troy ounce): 1,266; 1,160; 1,282; 1,357; 1,374; 1,391; 1,404; 1,427 - Rubber (US cents per pound): 89; 71; 71; 73; 72; 72; 72 ### Balance of Payments highlights (2014–18, millions of U.S. dollars) - Trade balance: -638; -911; -879; -878; -781; -767; -711 - Exports, f.o.b.: 454; 254; 266; 245; 278; 236; 266 - of which: Iron ore: 246; 103; 70; 61; 55; 54; 8 - of which: Gold: 184; 287; 77; 122; 93; 11; 3 - Imports, f.o.b: -1,092; -1,165; -1,145; -1,123; -1,060; -1,003; -978 - Services (net): -1,008; -921; -869; -884; -564; -545; -569 - Income (net): -347; -284; -240; -250; -256; -276; -307 - Compensation of employees: -103; -58; -21; -19; -22; -19; -20 - Public interest payments due: -2; -3; -4; -4; -5; -5; -6 - Current transfers: 1,451; 1,462; 1,320; 1,340; 967; 961; 995 - of which: Ebola-related grants: 569; 0; 82; 82; 0; 0; 0 - Current account balance: -541; -654; -668; -672; -634; -626; -592 - Capital and financial account (net): 503; 595; 669; 636; 685; 630; 623 - Capital account: 117; 69; 61; 60; 60; 61; 61 - Financial account: 386; 527; 607; 575; 625; 570; 562 - Foreign direct investment (net): 276; 257; 258; 250; 271; 259; 322 - Official financing: medium and long term (net): 9; 11; 19; 12; 9; 13; 12 - Change in gross official reserves (increase -): -18; -34; -12; -23; -51; -32; -27 - Financing gap (- deficit / + surplus): 0; 0; 0; -380; -280 ### Fiscal operations details (central government, cash basis, millions of U.S. dollars, FY2014–FY2018) - Total revenue and grants (millions): 549; 646; 670; 652; 674; 675; 642 - Revenue: 471; 447; 427; 453; 526; 498; 538 - Tax revenue: 386; 369; 381; 402; 419; 402; 441 - Non-tax: 86; 78; 45; 51; 107; 96; 97 - Grants: 78; 199; 244; 199; 149; 177; 104 - of which: Budget support: 36; 60; 60; 68; 30; 50; 31 - of which: Ebola-related grants: 0; 137; 97; 91; 0; 60 - Expenditure and net lending: 588; 814; 817; 739; 826; 860; 781 - Current expenditure: 488; 638; 592; 576; 609; 631; 614 - Wages and salaries: 200; 255; 264; 257; 259; 258; 263 - Goods and services: 163; 259; 221; 219; 231; 244; 186 - Interest: 5; 10; 11; 9; 13; 13; 37 - Capital expenditure: 100; 176; 224; 162; 216; 229; 168 - Overall balance, including grants: -39; -167; -146; -87; -151; -185; -140 - Overall balance, excluding grants: -117; -366; -390; -286; -300; -362; -244 - Identified financing: 391; 671; 468; 715; 1147; 140 - External financing (net): 44; 114; 117; 112; 131; 131; 118 - Domestic financing (net): -55; 33; 30; -25; 21; 34; 22 - Memorandum items: - Iron-ore related revenue: 292; 287; 108; 12 - Total public external debt: 264; 458; 588; 580; 721; 734; 869 - Central government domestic debt: 303; 291; 271; 268; 269; 366; 374 - Fiscal year nominal GDP: 2,005; 1,991; 2,086; 2,073; 2,228.6; 2,183; 2,326 ### Fiscal operations (percent of GDP, FY2014–FY2018) - Total revenue and grants: 27.4; 32.5; 32.1; 31.4; 30.3; 30.9; 27.6 - Revenue: 23.5; 22.5; 20.5; 21.8; 23.6; 22.8; 23.1 - Tax revenue: 19.2; 18.6; 18.3; 19.4; 18.8; 18.4; 18.9 - Grants: 3.9; 10.0; 11.7; 9.6; 6.7; 8.1; 4.5 - Expenditure and net lending: 29.3; 40.9; 39.2; 35.6; 37.0; 39.4; 33.6 - Current expenditure: 24.3; 32.0; 28.4; 27.8; 27.3; 28.9; 26.4 - Capital expenditure: 5.0; 8.8; 10.8; 7.8; 9.7; 10.5; 7.2 - Overall balance, including grants: -1.9; -8.4; -7.0; -4.2; -6.8; -8.5; -6.0 - Excluding grants: -5.8; -18.4; -18.7; -13.8; -13.5; -16.6; -10.5 - Total public external debt: 13.2; 23.0; 28.2; 28.0; 32.3; 33.6; 37.4 - Central government domestic debt: 15.1; 14.6; 13.0; 12.9; 12.1; 16.8; 16.1 - Basic balance: 3.1; 0.4; 3.7; 3.6; 2.9; 2.0; 1.2 ### Monetary survey highlights (2014–17, millions of U.S. dollars unless otherwise indicated) - CBL's gross foreign reserves: 514; 532; 554; 567; 602 - CBL's gross official foreign reserves (millions): 411; 446; 457; 469; 501 - CBL's net foreign exchange position: 179; 164; 189; 181; 192 - Net domestic assets: -23; -28; -12; -24; -35 - Net claims on government: 156; 87; 103; 90; 180 - Monetary base (M0): 152; 161; 172; 157; 159 - Broad money (M2): 697; 709; 718; 709; 742 - Broad money (annual change): 2.1; 1.7; 1.3; 0.1; 4.6 - Money multiplier (M2/M0): 4.6; 4.4; 4.2; 4.5; 4.7 ### Financial soundness indicators (selected, 2014–16) - Regulatory capital to risk-weighted assets: 20.5; 21.4; 23.6; 20.3; 23.8; 18.0; 18.8; 15.5; 16.2; 20.0 - Reported net capitalization: 14.3; 15.2; 15.0; 12.6; 13.1; 12.3; 13.1; 11.8; 11.6; 13.3 - Non-performing loans to total loans: 14.5; 15.5; 16.3; 18.7; 18.5; 19.2; 16.5; 15.7; 15.7; 14.8 - Provisions to non-performing loans net of interest in suspense: 73.3; 57.4; 64.4; 61.1; 62.9; 62.5; 72.2; 73.5; 78.6; 80.4 - Return on assets: -0.4; -0.3; -0.5; 0.1; -0.6; -1.0; -0.8; -1.0; -2.4; 0.6 - Return on equity: -2.6; -2.0; -3.4; 1.0; -5.2; -8.1; -6.7; -9.0; -18.0; 4.5 - Liquid assets to deposits and designated liabilities: 25.4; 41.6; 45.9; 50.4; 44.9; 41.8; 39.7; 36.8; 34.7; 40.2 - Net loans to deposits: 51.7; 58.4; 56.5; 50.4; 50.8; 50.7; 54.9; 56.8; 42.1; 58.6 ### Indicators of capacity to repay the Fund (2016–26, millions of U.S. dollars unless otherwise indicated) - Prospective drawings based on existing and prospective credit: ECF: 27.7 (2016); 14.8 (2017) - Total obligations based on existing and prospective credit (charges and interest): 0.0; 0.0; 2.1; 10.8; 20.3; 23.2; 26.5; 27.4; 24.4; 13.3; 8.5 - Repayments and repurchases: 0.0; 0.0; 2.1; 10.5; 20.0; 23.0; 26.3; 27.3; 24.4; 13.3; 8.5 - Outstanding Fund credit: 143.4; 158.2; 156.1; 145.6; 125.6; 102.6; 76.3; 49.0; 24.6; 11.4; 3.0 - Outstanding Fund credit (in percent of GDP): 9.5; 10.0; 9.1; 7.7; 5.9; 4.5; 3.0; 1.8; 0.8; 0.3; 0.1 - Gross official reserves (in percent of GDP): 42.8; 44.4; 41.6; 36.4; 31.4; 23.2; 15.7; 9.3; 4.3; 1.9; 0.5 - Quota (percent of GDP): 55.5; 61.2; 60.4; 56.4; 48.6; 39.7; 29.5; 19.0; 9.5; 4.4; 1.1 ### Schedule of disbursements under ECF and RCF arrangements (SDR amounts; 2012–17) - SDR 7.382 million — November 19, 2012 — Executive Board approval of the three-year ECF arrangement - SDR 7.382 million — July 3, 2013 — Executive Board completion of the first review under the three-year ECF arrangement - SDR 7.382 million — December 11, 2013 — Executive Board completion of the second review under the three-year ECF arrangement - SDR 7.382 million — July 3, 2014 — Executive Board completion of the third review under the three-year ECF arrangement - SDR 32.300 million — September 26, 2014 — Executive Board approval of augmentation of access of 25 percent of quota under an ad hoc review - SDR 32.300 million — February 23, 2015 — Executive Board approval of access of 25 percent of quota under a Rapid Credit Facility - SDR 7.382 million — December 21, 2015 — Executive Board completion of the fourth review under the three-year ECF arrangement - SDR 13.842 million — March 30, 2016 — Executive Board completion of the fifth review under the three-year ECF arrangement with proposed 2.5 percent access augmentation - SDR 13.848 million — September 30, 2016 — Executive Board completion of the sixth review under the three-year ECF arrangement with proposed 2.5 percent access augmentation - SDR 7.382 million — March 30, 2017 — Executive Board completion of the seventh review under the four-year ECF arrangement - SDR 7.382 million — September 30, 2017 — Executive Board completion of the eighth review under the four-year ECF arrangement *Sources: Liberian authorities; and IMF staff estimates and projections.* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### External risks - Significant slowdown in China and other large EMs/frontier economies, leading to further weakness in commodity prices. - Likelihood: Medium - Potential Impact: Protracted low commodity prices could delay natural resource sector recovery, lowering overall medium-term growth and fiscal revenue. - Policies to Minimize Impact: - Accumulate international reserve buffers. - Diversify the structure of the economy and export markets. - Seek additional financing resources and prioritize expenditure to compensate revenue shortfall. - Reduced financial services by global/regional banks. - Likelihood: High - Potential Impact: Lower trade finance, flow of remittances, and humanitarian aid following difficulties in identifying credible counterparties. - Policies to Minimize Impact: - Strengthen AML/CFT supervisory framework. - Address gaps in the AML/CFT legislature including terrorist financing. - Improve tax system transparency. ### Domestic risks - Large scale re-emergence of Ebola disease. - Likelihood: Low - Potential Impact: Socio-economic recovery process would be delayed, depressing growth and worsening the living standards of vulnerable groups. - Policies to Minimize Impact: - Continue efforts to fight the disease, including ensuring continued communities' engagement. - Strengthen health and social protection systems. - Deterioration of security conditions after the UNMIL withdrawal. - Likelihood: Medium - Potential Impact: A security vacuum would undermine investor and consumer confidence and slow down economic activity. - Policies to Minimize Impact: - Ensure smooth transition from UNMIL to national security system. - Increasing financial sector vulnerability. - Likelihood: Medium - Potential Impact: Weak financial sector would drag down development. Additional fiscal costs from support to the banking sector would weigh on fiscal space. - Policies to Minimize Impact: - Improve profitability of the banking sector. - Accelerate the removal of NPLs. - Set up a bank resolution framework. - Weak policy implementation. - Likelihood: High - Potential Impact: Possibly under the stress from a worsening of government revenue, security, and/or health situation, implementation of PFM measures, fiscal discipline, and exchange rate policy may be undermined. - Policies to Minimize Impact: - Front-load policy implementation and maintain engagement with the IMF. - Increasing debt distress. - Likelihood: High - Potential Impact: The worsened macroeconomic outlook, especially key export sectors, and high public investment needs and borrowing pressures could raise risk of debt distress from moderate to high. - Policies to Minimize Impact: - Prioritize public projects financed by external loans and seek grant financing instead of loan financing. ### Notes on the Risk Assessment Matrix (RAM) - The RAM shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). - Relative likelihood definitions used by staff: - "low" = probability below 10 percent; - "medium" = probability between 10 and 30 percent; - "high" = probability between 30 and 50 percent. - The RAM reflects staff views as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. - “Short term” and “medium term” indicate the risk could materialize within 1 year and 3 years, respectively. ### Annex II. Debt Sustainability Analysis ### Summary conclusion - Liberia’s risk of debt distress remains moderate but debt vulnerabilities have risen. - The debt-to-exports and debt-to-GDP ratios have deteriorated compared to the 2016 Article IV, reflecting weaker-than-expected exports and growth outlook. ### A. Underlying assumptions - The baseline macroeconomic projections in the near- to-medium-term have deteriorated from July 2016 DSA. - The economic recovery has not yet materialized after the commodity price shock and the Ebola epidemic. - GDP growth has been revised down to an average of 3.8 percent during 2016-2020, from 4.7 percent in the Article IV. - Export growth is slower than previously projected. Projected export growth for 2016-2020 is now down from -2.3 percent to -2.4 percent. - Text Table 1. Underlying DSA assumptions (2016-2020 / 2016-2017) - Real GDP growth (percent): July 2016 DSA 4.7; Current DSA 3.8 - GDP deflator (annual percent change): July 2016 DSA 3.0; Current DSA 3.5 - Primary deficit (percent of GDP): July 2016 DSA 5.5; Current DSA 4.6 - Exports growth (percent): July 2016 DSA -2.3; Current DSA -2.4 - (Also reported: Real GDP growth 3.8 and 1.9 in another layout; GDP deflator 2.0 and 2.8; Primary deficit 6.7 and 6.2; Exports growth -9.9 and -11.0 — preserved as presented in source table.) ### B. External DSA findings - Under the baseline scenario: - The PV of debt-to-GDP ratio is projected to increase from 18 percent in FY2016 to 23 percent in FY2020, and gradually decline thereafter. - The PV of debt-to-export ratio is projected to rise from 54 percent in FY2016 to a peak of 99 percent in FY2019, close to the threshold of 100 percent. - The peak of 99 percent is higher than previously projected (96 percent in July 2016 DSA), mainly due to lower-than-expected export growth. - Probability charts do not show a breach of thresholds under the baseline scenario and confirm a moderate risk of debt distress. - Under the extreme shock scenario: - Both the PV of debt-to-GDP ratio and the PV of debt-to-exports ratio breach their thresholds around FY2018–19, indicating high vulnerability to commodity price shocks. - Composition of external debt stock comprises mostly multilateral loans. ### Authorities' stance and policy intentions - Authorities agreed with staff’s assessment of the moderate risk rating and share concerns about debt vulnerabilities. - They underlined challenges of strengthening infrastructure while preserving debt sustainability. - To keep the debt distress risk at moderate they intend to: - Continue prioritizing potential loans. - Respect the debt limits under the ECF as guidance for prudent borrowing behavior. - Limit signature of new loans. - Prioritize grants and concessional financing. - Undertake diversification of the economy to be more resilient to external shocks. - Note: They also observed that higher investment would increase growth dividends and in turn help debt sustainability. ### C. Public DSA findings - The public DSA has not significantly changed compared to the July update. - Under the baseline and shock scenarios, public debt indicators remain below the threshold. - The PV of public debt-to-GDP ratio is expected to rise from 18 percent in FY2016 to around 29 percent in FY2018 and slowly decline thereafter. - The PV of debt-to-revenue ratio is expected to rise from 81 percent in FY2016 to a peak of 100 percent in FY2018 and slowly fall afterwards. - The PV of debt service-to-revenue ratio is expected to reach a peak of 6 percent in FY2020 and decline thereafter. ### D. Conclusion - Liberia remains at moderate risk of debt distress under the baseline, but debt vulnerabilities have increased and could breach thresholds under severe external shock scenarios, reflecting sensitivity to commodity price fluctuations. *Prepared by Atsushi Oshima and Ippei Shibata.* ### 6. Rising debt vulnerabilities call for prudent borrowing policy as well as increased ### _cr16392 - 6. Rising debt vulnerabilities call for prudent borrowing policy as well as increased ### Summary findings on debt vulnerabilities and growth outlook - The DSA shows that Liberia’s risk of debt distress is still at a moderate level. - The commodity price shock, the Ebola epidemic, and the UNMIL withdrawal worsened growth prospects and export industries, deteriorating the debt-to-GDP and debt-to-export ratios compared to the previous DSA. - Authorities need to pursue a prudent borrowing strategy, prioritize more pro-growth projects, and diversify the economy to increase resilience to external shocks. ### Public and external debt stock (end of September 2016) - Total debt stock: 597 Millions of US dollar (Percent of Total: 100) - By creditors: - Multilateral including IMF: 565 (95) - World Bank: 239 (40) - AfDB: 63 (11) - Bilateral: 33 (5) - Sources: Liberian authorities; and IMF staff calculations ### Key DSA indicators and stress-testing insights (2015–35) - The most extreme stress test is defined as the test that yields the highest ratio on or before 2025. - In figures provided: - The most extreme corresponds to a One-time depreciation shock in figures b, d, and f. - In figure c it corresponds to a Terms shock. - In figure e it corresponds to a Non-debt flows shock. - Indicators shown across baseline, historical scenario, and most extreme shock include: - Debt accumulation (rate, grant-equivalent financing % of GDP, grant element of new borrowing %). - PV of debt-to-GDP ratio. - PV of debt-to-exports ratio. - PV of debt-to-revenue ratio. - Debt service-to-exports ratio. - Debt service-to-revenue ratio. - Debt service-to-revenue ratio and probability of debt distress under alternative scenarios are charted for 2015–2035. ### Selected baseline numbers from External Debt Sustainability Framework, Baseline Scenario, 2012–35 (Table A1) - External debt (nominal) series (Percent of GDP): 2012: 9.4; 2013: 10.9; 2014: 13.6; 2015: 23.4; 2016: 29.4; 2017: 35.1; 2018: 38.0; 2019: 38.5; 2020: 37.9; 2025 Average: 35.0; 2035 Average: 31.1 - Change in external debt: -2.2; 1.5; 2.7; 9.8; 6.0; 5.7; 3.0; 0.4; -0.5; -0.3; -0.5 - Identified net debt-creating flows: -0.2; 2.6; 7.8; 12.7; 9.7; 7.7; 5.8; 3.4; 2.7; 0.1; 0.6 - Non-interest current account deficit (Percent of GDP): 24.3; 25.9; 28.1; 21.3; 11.6; 29.9; 31.3; 28.9; 25.8; 23.6; 22.7; 25.1; 20.6; 24.0 - Exports (Percent of GDP): 48.3; 47.5; 42.6; 38.1; 32.5; 27.5; 24.3; 23.7; 23.2; 25.9; 22.9 - Imports (Percent of GDP): 125.6; 113.8; 114.5; 125.4; 119.2; 97.9; 80.1; 75.8; 71.3; 66.4; 52.7 - Net FDI (negative = inflow) (Percent of GDP): -22.8; -22.3; -19.6; -13.7; 17.2; -17.7; -21.3; -21.1; -19.0; -18.5; -18.3; -22.7; -18.8; -21.7 - PV of external debt (in Millions of US dollars): PV of PPG external debt (Millions of US dollars) series: 157.3; 283.8; 348.7; 443.8; 529.0; 590.9; 642.2; 885.3; 815.6 - PV of external debt to exports (Percent): ......19.0; 38.1; 54.4; 77.2; 95.1; 98.9; 88.8; 77.9; 76.9 - PV of PPG external debt in percent of government revenues: ......34.4; 64.6; 80.9; 92.2; 100.2; 97.3; 92.6; 83.8; 66.0 - PPG debt service-to-exports ratio (in percent): 0.1; 0.8; 0.4; 0.6; 0.9; 1.2; 1.8; 4.0; 5.9; 4.2; 4.4 - PPG debt service-to-revenue ratio (in percent): 0.2; 1.4; 0.8; 1.1; 1.3; 1.5; 1.9; 3.9; 5.5; 4.5; 3.8 - Total gross financing need (Millions of U.S. dollars): 24.2; 73.5; 175.9; 248.3; 214.0; 179.1; 168.3; 153.3; 165.8; 153.3; 286.9 - Non-interest current account deficit that stabilizes debt ratio: 26.5; 24.4; 25.4; 20.1; 25.4; 23.3; 22.8; 23.2; 23.3; 25.4; 21.1 ### Key macroeconomic assumptions (Table A1) - Real GDP growth (in percent): 7.9; 8.5; 5.7; 7.1; 1.8; -2.8; 2.4; 1.4; 3.7; 5.5; 5.9; 2.7; 7.9; 4.8; 6.8 - GDP deflator in US dollar terms (change in percent): 7.6; 4.0; 2.3; 6.3; 2.7; 2.2; 1.6; 3.9; 2.7; 4.2; 4.9; 3.2; 1.1; 3.7; 2.2 - Effective interest rate (percent): 0.1; 1.6; 0.7; 0.4; 0.6; 0.9; 0.7; 0.7; 0.7; 0.8; 0.8; 0.8; 1.0; 0.8; 0.9 - Growth of exports of G&S (US dollar terms, in percent): 26.1; 11.1; -3.1; 15.0; 16.8; -11.3; -11.1; -10.9; -5.6; 6.8; 8.8; -3.9; 11.2; 4.7; 9.1 - Growth of imports of G&S (US dollar terms, in percent): 9.3; 2.2; 8.8; 15.7; 24.0; 8.8; -1.0; -13.5; -12.8; 4.0; 4.5; -1.7; 5.4; 5.0; 7.0 - Grant element of new public sector borrowing (in percent): 47.1; 54.5; 45.9; 47.9; 50.6; 50.7; 49.4; 51.1; 54.0; ... - Government revenues (excluding grants, in percent of GDP): 26.2; 27.5; 23.5; 22.5; 21.8; 22.8; 23.1; 24.0; 24.7; 24.1; 26.6; 25.5 - Aid flows (Millions of US dollars): 28.3; 45.7; 77.6; 199.1; 198.6; 196.9; 104.3; 76.0; 81.7; 88.9; 209.7 - of which: Grants: same series as Aid flows - of which: Concessional loans: 0.0 across listed years - Grant-equivalent financing (in percent of GDP): .........15.5; 12.9; 12.3; 7.4; 5.3; 5.1; 3.7; 3.5; 3.8 - Grant-equivalent financing (in percent of external financing): .........71.5; 82.5; 76.0; 70.0; 69.7; 70.4; 69.2; 73.3; 71.5 ### Public sector debt dynamics (Table A2) — selected figures - Public sector debt (Percent of GDP): 2012: 11.0; 2013: 12.4; 2014: 16.1; 2015: 24.3; 2016: 29.9; 2017: 40.3; 2018: 43.7; 2019: 40.9; 2020: 40.0; 2025: 36.0; 2035: 31.3 - Change in public sector debt (Percent of GDP): -2.6; 1.4; 3.8; 8.1; 5.6; 10.4; 3.5; -2.8; -0.9; -0.5; -0.6 - Identified debt-creating flows (Percent of GDP): 1.3; 0.6; 1.0; 8.3; 4.0; 5.8; 2.5; 0.2; -0.7; -1.3; -1.7 - Primary deficit (Percent of GDP): 3.2; 1.4; 1.8; 0.0; 2.1; 8.2; 4.0; 7.1; 5.2; 3.8; 2.9; 5.2; 1.4; 0.6; 1.2 - Revenue and grants (Percent of GDP): 27.9; 29.9; 27.4; 32.5; 31.4; 31.8; 27.6; 27.0; 27.6; 26.1; 28.6 - PV of public sector debt (Percent of GDP): 10.6; 15.4; 18.2; 26.4; 28.8; 25.8; 25.0; 21.1; 17.7 - Gross financing need (Percent of GDP): 3.4; 2.3; 2.1; 9.2; 4.7; 8.2; 6.3; 5.2; 4.5; 2.6; 1.6 - Debt service-to-revenue ratio (in percent): 0.5; 3.2; 1.2; 4.4; 3.1; 5.2; 4.7; 5.7; 6.6; 5.1; 4.0 ### Sensitivity analysis and stress-test outcomes (Table A3 and Table A4) - Sensitivity tables report baseline and scenario outcomes for PV of debt-to-GDP ratio, PV of debt-to-exports ratio, PV of debt-to-revenue ratio, debt service-to-exports ratio, and debt service-to-revenue ratio for years 2015, 2016, 2017, 2018, 2019, 2020, 2025, 2035. - Selected scenario outcomes (PV of debt-to-GDP ratio, Percent): - Baseline: 15 (2015), 18 (2016), 21 (2017), 23 (2018), 23 (2019), 23 (2020), 20 (2025), 18 (2035) - A2 (new public sector loans on less favorable terms): 15; 18; 24; 27; 29; 29; 30; 30 - B6 (One-time 30 percent nominal depreciation relative to the baseline in 2016): 15; 24; 29; 32; 33; 32; 28; 25 - Selected scenario outcomes (PV of debt-to-exports ratio, Percent): - Baseline: 38; 54; 77; 95; 99; 99; 78; 77 - A2: 38; 57; 86; 112; 121; 121; 125; 115; 129 (series across years) - B6: 38; 52; 74; 93; 98; 98; 77; 76 - Selected scenario outcomes (Debt service-to-revenue ratio, Percent): - Baseline: 11; 12; 46; 54; 44 (selected year snapshots) - A2: 11; 13; 57; 47 (selected year snapshots) - B6: 12; 23; 68; 65 (selected year snapshots) - Table A4 reports analogous sensitivity tests for public debt indicators (PV of Debt-to-GDP Ratio, PV of Debt-to-Revenue Ratio, Debt Service-to-Revenue Ratio). ### Policy implications and recommendations (from the chapter text) - Continue prudent borrowing policies to contain rising debt vulnerabilities. - Prioritize borrowing and public investment toward more pro-growth projects. - Intensify efforts to diversify the economy to reduce exposure of exports and growth to commodity price shocks and epidemiological and security-related shocks. *Sources: Liberian authorities; and IMF staff estimates and projections.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### External shocks and context - Two major exogenous shocks: the outbreak of the Ebola Virus Disease (EVD) and the decline in global commodity prices, particularly iron ore and rubber. - Additional sources of uncertainty: drawdown of the United Nations Mission in Liberia (UNMIL) culminating in December 2016, and the forthcoming October 2017 general and presidential elections. - Elections expected to cost about US$53 million, including security. ### Economic impact and recent developments - Ebola epidemic effects: - Decline of production in all sectors; undermined the Agenda for Transformation (AfT). - Real GDP growth declined from close to 8½ percent in 2013 to zero growth in 2014–2016. - Increased government expenditure needs to upgrade the health system and social spending. - Commodity price shock effects: - Sharp fall in iron ore and rubber prices since 2015; projections indicate prices likely to remain below 2013 levels until at least 2025 (World Bank projection cited). - Resulted in sharp fall in exports, job losses, and delays in foreign investment and anticipated job creation in concession-related sectors. - Rubber production stagnated in 2016; iron ore production fell significantly. - UNMIL drawdown effects: - Reduced local spending and inflows of US dollars; pressure on the Liberian dollar. - Increased budgetary needs for security and civil administration. - 2016 macroeconomic projections and indicators: - Economy expected to contract in 2016, with growth projected at -0.5 percent. - Agricultural sector projected to grow at 6.4 percent in 2016, against 0.7 percent in 2015. - Inflation averaged 7.7 percent in 2015 and picked up to 9.9 percent in August 2016. - Current account deficit projected to widen from US$654 million in 2015 to US$672 million in 2016. - Gross international reserves of the Central Bank of Liberia (CBL) expected to increase marginally from about US$446 million in 2015 to US$469 million in 2016. - CBL net foreign exchange position recovered from US$164 million in December 2015 to US$178 million in June 2016. - Fiscal and budget developments: - Government domestic revenue for FY2015/16 was US$453 million, US$21 million (1 percentage point of GDP) lower than budgeted. - Compared to revised forecast, domestic revenue collection exceeded its target by US$37 million. - Delay in accessing the World Bank’s development policy loan of US$20 million contributed to a total resource envelope decrease of US$52 million (2.5 percentage points of GDP) from the budget. - Government cut expenditure by US$67 million (3.2 percent of GDP) from the budget, resulting in a budget deficit of US$23 million (on a commitment basis) and accumulation of deposits of about US$15 million. - Banking sector: - Credit to the private sector increased by 16.4 percent year-on-year in June 2016. - Non-performing loans (NPLs) peaked at over 20 percent in 2015 and declined to 13.5 percent in August 2016. ### Performance under the ECF program and deviations - Overall program performance through October 2016 described as uneven. - End-December 2015: - All indicative targets met. - Missed two performance criteria (PCs): floor on government revenues and CBL’s net foreign exchange position. - Government revenue PC missed by US$7 million due to low mining collections and deferral of social contributions. - CBL net foreign exchange position PC missed by US$20 million due to exceptional liquidity support to the financial sector and lower-than-programmed government sales of foreign exchange. - End-June 2016: - Met three out of six PCs; missed PC on government revenues by US$21 million (lower natural resource revenues), missed CBL net foreign exchange position PC by US$14 million (increased exposure to FIBLL), and missed CBL gross credit to central government PC by US$0.5 million. - All indicative targets met except net domestic assets (NDA), which was missed by US$20.7 million due to higher-than-expected claims on the private sector. - Debt sustainability: - Debt stock still low, but debt sustainability analysis shows the risk of debt distress has moved from low to moderate. ### Structural reform progress - Fifth review: met 2 out of 9 structural benchmarks (extension of IFMIS coverage; submission of project analyses of new PSIP); seven missed with explanations and revised timelines noted (e.g., donor budget support meeting launched in early February 2016; domestic public investment database expected by end-November 2016; SOE reports published with delays; externally-financed projects database delayed to end-November 2016; Ebola forbearance study finalized and submitted in February 2016; Emergency Liquidity Assistance framework drafted; CBL financial statements delayed by T24 migration but Q2 report submitted). - Sixth review: met 3 out of 5 structural benchmarks (extension of IFMIS coverage; CBL quarterly financial statements; publication of quarterly SOE reports); missed the end-June 2016 benchmark on submission of spending and procurement plans to the Public Procurement and Concessions Commission. ### Corrective actions taken - Introduction of strong revenue measures in the approved FY2016/17 National Budget. - Rigorous implementation of the CBL three-year financial plan. - Other corrective actions referenced as reasons for requesting waivers. ### Requests to the IMF and program adjustments sought - Request for higher access equivalent to 5 percent of quota (about US$18 million) to address balance of payments shock and a budget financing gap; proposed disbursement at completion of the fifth and sixth reviews and directed to support the FY2017 budget. - Request for an extension of the ECF until November 18, 2017, and corresponding additional financing of 5.7 percent of quota (about US$21 million) to maintain macroeconomic stability in the run-up to the October 2017 elections and complete the delayed program. - This additional financing would support external buffers of the CBL and fill a balance of payments gap in 2017. - Request that the fifth and sixth reviews be completed and a disbursement in the amount of SDR 14.764 million be approved. - Specific requests in completing the two reviews: - Waivers for missed end-December 2015 and end-June 2016 PCs on the floor on total revenue collection of the central government (original ratified revenue forecast) and the net foreign exchange position of the CBL, based on corrective actions implemented in 2016. - Waiver for the missed end-June 2016 PC on gross direct CBL credit to the central government, noting a small deviation. - Extension of the ECF-supported program to November 18, 2017, with two additional reviews with test dates for end-December 2016 and end-June 2017. - Augmentation of access equivalent to 10.7 percent of quota in total: 5 percent directed to the budget to be disbursed on completion of the combined fifth and sixth reviews, and 5.7 percent of quota to be disbursed equally over the seventh and eighth reviews. - Monitoring and reviews: - Continued monitoring by quantitative performance criteria and structural benchmarks, and semi-annual reviews. - Definitions and reporting requirements set out in the accompanying Technical Memorandum of Understanding (TMU). - Expectation that the seventh review will be completed by June 2017 (based on end-December 2016 and other relevant performance criteria) and the eighth review by November 18, 2017 (based on end-June 2017 and other relevant performance criteria). ### Policy stance and commitments - The government affirms that policies described in the MEFP of November 19, 2012, its subsequent supplements, and the attached supplementary MEFP provide an adequate basis for achieving economic policy objectives. - Government readiness to take additional measures if required and to consult with the Fund in advance of revisions, per Fund policies. - Commitment to provide the Fund staff with relevant information to complete program reviews and monitor performance in a timely manner as outlined in the TMU. - Consent to publication on the IMF website of this letter, the accompanying MEFP, TMU, and the related staff report for the combined fifth and sixth reviews. *Letter dated Monrovia, November 30, 2016; signed by Hon. Boima S. Kamara, Minister of Finance and Development Planning, and Hon. Milton A. Weeks, Executive Governor, Central Bank of Liberia.* ### 15. The macroeconomic outlook remains difficult amid the commodity price shock and ### 15. The macroeconomic outlook remains difficult amid the commodity price shock and ### Macroeconomic outlook and projections - Economic growth is projected to rebound slightly above 3 percent in 2017 buoyed by a further expansion in commercial gold production and continued growth in the agricultural sector. - Over the medium term (2018–21), economic growth is projected to stabilize at about 6 percent from the pre-crisis level of more than 7 percent. - Medium-term growth drivers: rebound in mining, growth in agriculture and forestry, an increase in manufacturing, and a stable service sector. - Inflation is expected to average around 7 percent over the medium term as weak international food and oil prices offset the impact of the depreciation of the Liberian dollar. ### Downside risks to the outlook - Ebola: a wide scale reoccurrence would deter private investment and dampen the recovery; government efforts focus on increased surveillance and adherence to health protocols. - Global slowdown: further slowdown, particularly in China and other emerging markets, could depress commodity prices and worsen the natural resource sector crisis. - Withdrawal of UNMIL: could pose security risks; government plans to mitigate via full implementation of the security transition plan. - Spillovers from terrorist attacks in neighboring countries: could affect consumer, donor, and investor confidence and increase security-related spending pressures. - Fiscal risks: pressures from a weak revenue situation could fuel policy slippages and be worsened by potential contingent liabilities from the financial sector. ### Fiscal policy — pressures and budget envelope - Fiscal pressures: weak natural resource sector revenues despite end of Ebola; external budget support fell in FY2015/16 and is expected to be lower in FY2016/17. - Election and security costs: total estimated at US$53 million (2.4 percent of GDP) for FY2016/17 and FY2017/18, of which US$22 million are budgeted for FY2016/17. Government expected US$23 million from international community but only US$7 million identified so far. - Security handover: FY2016/17 budget allocates US$8 million, but another US$10 million would be needed. - FY2016/17 approved total resource envelope: US$600 million (27 percent of GDP), including an IMF augmentation of US$18 million as a contingent revenue. - Recurrent expenditure: US$520 million. - Public Sector Investment Program (PSIP): US$80 million (including elections US$22 million and UNMIL drawdown US$8 million). - Envisaged budget deficit: US$27 million (1 percent of GDP). ### FY2016/17 revenue measures (estimated yields) - Total estimated revenue yield from measures: US$24 million. - Increase in GST rate: raised from 7 to 10 percent; can generate about US$20 million annually. - Increase in excise on tobacco: potentially generating about US$1 million in FY2016/17. - Surcharge on outbound calls: expected revenue of US$2.5 million in FY2016/17. ### Fuel storage surcharge and LPRC arrangements - January 2016: storage surcharge introduced of US$0.3 per gallon on top of existing US$0.2 fee; total surcharge US$0.5 per gallon. - Revenues split equally between government and Liberia Petroleum Refinery Corporation (LPRC). - Government portion amounting to US$13 million in FY2015/16 transferred to FY2016/17 budget as a dividend. - LPRC will transfer revenue collected through this surcharge to the government on a monthly basis. - FY2016/17 budgeted revenues from the surcharge: about US$30 million. ### Expenditure streamlining and Cabinet fiscal measures (June 30, 2016) - Compensation of employees: use of consultant services constrained; new hiring of regular staff limited to education, health and security sectors. - Goods and services: restrictions on official travel, printing and publication, and fuel surcharges. - Capital expenditure: reduction in new purchase of vehicles and vehicle maintenance and repair. ### Fiscal risks, outturns, and financing gap - Q1 FY2016/17: tax and non-tax revenue fell short of historical performance projections; growth projections revised downward relative to budget assumptions. - Projected revenue shortfall: US$37 million (about 1.7 percent of GDP). - Unbudgeted road project cost: US$37 million, of which US$10 million will be incurred in FY2016/17 and financed by domestic loan. - Text Table 1. FY2017 Budget (Millions of U.S. dollars) - FY2016 Outturn / Approved Budget / Budget Projection - Total resources: 571 / 600 / 563 - Revenue: 453 / 530 / 493 - Tax: 402 / 432 / 406 - Non-tax: 51 / 98 / 87 - Grants: 68 / 30 / 50 - Loans: 28 / 38 / 18 - Carryover: 22 / 2 / 2 - Expenditure: 556 / 600 / 600 - Recurrent: 484 / 520 / 520 - of which: Amortization: 13 / 13 / 13 - PSIP: 72 / 80 / 80 - of which: Election and security handover: 30 / 30 - Overall balance: -23 / -27 / -44 - Financing gap (-: deficit): 15 / 0 / -37 - Additional measures: 37 - Revenue: 6 - Expenditure: 11 - World Bank Crisis response window: 20 - Financing gap: US$37 million. - Additional US$20 million in budget support grants from the World Bank would partly fill the gap. - Government plans to close remaining US$17 million gap through: - increasing real estate tax (US$0.5 million); - increasing excise tax on beverages (US$1 million); - introducing excise surcharge on all domestic call (US$3 million); - increasing other specific goods and service taxes (US$1 million); - reducing expenditure ceiling of goods and service purchase, subsidies and transfers, and fixed capital purchase by 3.8 percent from the approved budget (US$11 million). - These proposals submitted to the Legislature for approval. ### FY2017/18 fiscal stance and Road Fund - FY2017/18: total available resources projected to shrink due to sharp decline in donor budget support, partially mitigated by gradual domestic recovery and UNMIL drawdown. - Current fiscal stance to be maintained with a gradual shift of spending focus from current expenditure to capital expenditure. - Road Fund: Road Fund Act passed in October 2016; regulations and institutional arrangements being finalized to start operation from FY2017/18. - Fund financing: share of fuel storage fee revenues and matching co-financing from the Millennium Challenge Corporation (MCC), which will provide up to US$8 million over 5 years. - Budget transparency: budget of the Road Fund to be attached to the National Budget as an annex. ### Monetary and financial sector policies - Monetary policy objective: ensure low inflation and a stable exchange rate. - Exchange rate depreciation: 10.5 percent in the first half of 2016 compared to a similar period in 2015. - Factors behind depreciation: reduced export earnings due to slump in commodity prices, stronger-than-expected impact of UNMIL drawdown, and a 15.1 percent slowdown in net inward workers’ remittances in the first half of 2016 compared to the same period of 2015. - Domestic currency liquidity: net government spending in Liberian dollars rose to L$2.7 billion in the first half of 2016; securities falling due in February and July 2016 were not immediately rolled over, leading to temporary liquidity increase and delayed FX sales to the CBL. - CBL policy: continue to intervene to smooth exchange rate volatility while accumulating foreign reserves to strengthen external sustainability. ### Monetary policy constraints and coordination - Dollarization: deposit and credit dollarization estimated at about 80 and 90 percent respectively, restricting monetary policy scope and lender of last resort function. - Legislative constraint: March 2014 amendment to the CBL Act mandates issuance of currency to the approval of the Legislature, preventing the CBL from addressing Liberian dollar liquidity shortages in December 2015; government to discuss reversal with the Legislature. - Liquidity Working Group (LWG): improved coordination through LWG meetings in first half of 2016 with CBL, LRA, and MFDP. - LWG recommended issuance of L$6 billion bond, maturity two years, average yield 14.5 percent; issued in July 2016. - LWG effectiveness hampered by transitions; attendance elevated to Deputy Governor (CBL) and Deputy Minister for Economic Management (MFDP); bi-monthly meetings resumed in October 2016. - Government to harmonize issuances and maturities of securities to avoid sharp liquidity swings. ### Central Bank of Liberia (CBL) financial plan and reserve targets - CBL approved a three-year financial plan in December 2015 aiming for sizeable reduction in operational deficits; 2016 budget cut by US$10 million versus 2015. - Q1 2016: quarterly financial statements with comments to the Fund (repeated structural benchmark for fifth to eighth reviews). - Unplanned currency printing: US$5.2 million domestic currency printing to address seasonal shortages and replace worn banknotes after Legislature approval in January 2016; CBL substituted dollar expenditures with Liberian dollar equivalents for other line items, accommodating about 60 percent of printing costs. - CBL foreign exchange position strengthening: - Government provides regular monthly sales of US$3.25 million and additional US$862,500 weekly sales of foreign exchange to the CBL. - CBL to limit intervention to smoothing volatility and prioritize reserve accumulation. - Reserve targets: gross reserves of 2.9 months of essential imports and net foreign exchange reserves position of US$181 million by end-2016. - Further target: reserve coverage over three months of imports with net foreign exchange position of US$192 million by end-June 2017. - CBL ready to issue CBL notes as additional tool for Liberia-dollar liquidity management. ### External sector and debt sustainability - Combined impacts of Ebola crisis and sharp decline in iron ore and rubber prices have reduced debt-carrying capacity. - DSA: risk of debt distress moved from low to moderate after HIPC completion in 2010; debt to export ratio deteriorated rapidly and is currently very close to the high-risk of debt distress threshold in the baseline scenario. - Any further decline in exports could push the country into high risk of debt distress. - Government actions: monitor debt evolution, strengthen Debt Management Unit (DMU), develop a new medium-term debt strategy (MTDS) with IMF and World Bank technical assistance. ### New borrowing and external loans - The government kept new borrowing below program targets in FY2015/16; no new borrowing agreements ratified, meeting end-June 2016 debt ceiling PC set at US$97 million. - FY2016/17 ratified loans amounting to US$155 million or US$91 million in PV terms. - Program envisages ratification of additional US$95 million in new loans in FY2016/17. - Text Table 2. List of New External Loans by Status for FY2015/16–FY2016/17 (Nominal Value in mils of U.S. dollars; Grant Element percent) — examples included: - IDA Additional Financing Agreement for the Accelerated Electricity Project: 60 / 52 - China Exim Bank Robert International Airport terminal Project: 52 / 29 - AfDB Mano River Union Road Dev. & Transport Facilitation Program: 37 / 58 - (Other projects and donors listed in the table within the source.) ### Structural reform agenda — public financial management and PIM - Public financial management (PFM) reforms: - Online procurement application system launched; PEFA report published. - Existing PFM Act being revised based on IMF recommendations; legal consultant to be hired by MFDP; revision expected to be completed by end-2016. - PFM reform unit updating PFM reform strategy to cover FY2016/17–FY2019/20. - Public investment management (PIM): - July 2016 IMF Public Investment Management Assessment (PIMA) identified weaknesses: low investment efficiency, weak project monitoring capacity and system, limited linkage between externally-financed projects and central government budget. - Government developing an action plan to implement PIMA recommendations to be incorporated into updated PFM reform strategy. - Cash management and Treasury Single Account (TSA): - MFDP developed draft concept note on TSA implementation including phased plan. - Plan elements: joint technical working group of MFDP, CBL and commercial banks; inventory of GoL bank accounts at CBL and commercial banks; memorandum of understanding on TSA operation. - Concept note being finalized in consultation with the IMF. - Addressing GAC Audit findings on special procurement: - All contracts identified in the audit have been regularized; US$11 million allocated in this year’s budget to pay these contracts which now amount to US$23 million. - Steps taken to resolve deficiencies in spending controls identified by the audit. - Project monitoring and evaluation unit established and staffed in MFDP to strengthen public investment implementation. *International Monetary Fund — Liberia: Selected Chapters and Statistical Appendix (content unit 15).* ### 37. The government is formalizing an agreement with the concession companies on the ### _cr16392 - 37. The government is formalizing an agreement with the concession companies on the ### Deferral of social contributions by concession companies - Foreign concession companies of key export commodities requested deferral of their social contribution payments totaling about US$10–15 million per year. - Government accepted partial deferral of 50 percent of their payment up to FY2018/19. - MOUs indicate the length of the deferral: four years starting FY2015/16, and include the repayment schedule. - MOUs are expected to be finalized and signed by the four main foreign companies by end-February, 2017 (structural benchmark for the seventh review). ### Budget formulation, procurement, and SOE monitoring - Government will integrate electronic systems, such as IFMIS, into the next year’s budget process and aim to submit the draft budget to the legislature by end-May 2017 at the latest. - From FY2017/18, budgeted ministries and agencies must submit their draft procurement plan based on the draft budget to the Public Procurement and Concession Committees (PPCC) to: - smooth the procurement process, - facilitate the introduction of framework procurement agreements, and - phase out systematic extension of previous fiscal year contracts (structural benchmark for the eight review). - Publication of the quarterly SOE report will continue, with Q4 also including the financial statements of covered SOEs (structural benchmark for seventh and eight reviews). - Government is closely monitoring the financial operations of LPRC to ensure proper management of the increased fuel fees. ### Revenue administration achievements and needs - LRA became operational in July 2014 and finalized its corporate strategic plan centered on four strategic goals: - (i) administer revenue legislation in an effective, fair, and transparent manner; - (ii) maximize voluntary compliance; - (iii) build an effective institution at all levels through excellence in leadership, accountability, technical and real infrastructural capacities; - (iv) transform revenue administration by utilizing effective Information and Communication Technology (ICT). - Key achievements include: - set up of the institution; - completion of a five-years strategic plan; - introduction of first phase of strategic management system; - introduction of desk audit system for large taxpayers on withholding taxes; - completion of sectorial audit manuals; - provision of taxpayer education through workshop; - implementation of goods and services tax return for some industries and online filing system; - introduction of the auditing of loss making companies in an attempt to defer filing of losses; - signing of MoU with other government agencies, such as Liberia Anti-Corruption Commission (LACC). - Further efforts needed: - capacity development in natural resource revenue management; - innovation and expansion of automation of the tax administration system; - a comprehensive staff integrity management program. - These reforms will require significant contributions from external partners, especially in tax and customs modernization, IT, capacity development, and hard and soft infrastructure support. ### LRA compliance management and VAT preparation - LRA is developing a compliance management framework (CMF) to define strategies for the large taxpayer segment, which account for over 80 percent of total collection, and will be launched in the first half of 2017. - CMF strategy includes development of risk analysis to support mitigation strategies: audit and enforcement activities, education, and service options. - Compliance will focus on core risks: registration, filing, payment, and accuracy of declarations, with attention to sectors dominant in the large taxpayer office (LTO). - Large taxpayer framework will be adapted to medium and small taxpayer segments where economic sectors overlap. - Effective control of large taxpayer compliance is critical to enable the LRA to more effectively introduce and administer the value-added tax. - VAT preparations: - Government is making progress with preparations to introduce a VAT in 2018. - VAT Steering Committee reconstituted with the Minister of Finance and Development Planning as Chair; inaugural meeting in May 2016. - Introduction of VAT is required as part of a regional agreement under ECOWAS; Liberia is the last remaining country in the region to introduce it. - Government finalizing the draft VAT bill, which benefitted from comprehensive comments from the IMF’s Fiscal Affairs and Legal departments. - A technical assistance request has been submitted to the IMF for an assessment of LRA capacity to implement and administer the VAT. - Key next steps: stakeholder engagements, submission of the bill for ratification, and preparation of the LRA for implementation. ### Review and amendments of the Liberia Revenue Code (LRC) - Review conducted by MFDP in collaboration with the LRA identified problematic tax policy issues including: - (i) the design of presumptive tax; - (ii) limitation of interest deduction; - (iii) taxation of indirect transfer interest in immoveable property; - (iv) excise taxation of beverages with reference to WTO and ECOWAS compliance requirements; - (v) taxation of telecommunication services; - (vi) fuel tax exemptions; - (vii) special investment tax incentives, covering both direct and indirect taxes. - Government committed to streamlining the tax incentive regime by eliminating differentiation based on region, local content and additional jobs. - Government will apply one uniform accelerated depreciation scheme for companies. - Amendments relating to presumptive tax, excise taxation of beverages and telecommunication, and investment incentives, complemented by an additional increase in goods and services tax and tobacco excise, were submitted to the Legislature in a bill attached to the FY2016/17 budget and approved in September. - MFDP jointly with the LRA is drafting the remaining amendments to be submitted to the Legislature by end-January 2017. ### Central Bank of Liberia (CBL): systems, supervision, and crisis preparedness - CBL upgraded core banking application to Temenos T24 replacing Bankmaster; covers domestic and foreign exchange operations and interfaces with ACH, ACP, RTGS, and SSSS. - T24 went live in early 2016 but encountered reporting capacity challenges, particularly exportation of data to CBL’s Microsoft access database; delays in monthly reporting obligations occurred but have since been resolved. - CBL reconciling back valued entries from Bankmaster to ensure transactions are posted in T24; once resolved, CBL will focus on producing a daily analytical balance sheet to inform LWG. ### Resolution of First International Bank Liberia (FIBLL) and GN Bank Liberia - FIBLL equity position deteriorated to about negative US$20 million reflecting accumulated operational losses due largely to mismanagement. - FIBLL received about US$19 million liquidity support from the CBL in 2015 and 2016. - Closure of FIBLL announced by the CBL on June 4, 2016, pursuant to the Financial Institutions Act under section 47–54. - Buyers, Ghana Growth Facility Fund (GGFC), injected US$18.5 million to meet the minimum capital requirement of US$10 million and provide additional liquidity support to the new Bank, GN Bank Liberia Limited. - Under the P&A agreement, some assets of FIBLL transferred to GN Bank Liberia and most deposit liabilities were covered by the acquirer. - GN Bank assessment: remains adequately capitalized with sufficient liquidity; steady reduction in losses observed due mainly to unwinding of aggressive deposit campaigns and modest operational expenses. - Concerns about GN Bank’s ambitious business plan mitigated by buyers’ agreement to promptly correct capital shortcomings (section 13.2 of the P&A agreement). - GN Bank is under high-frequency supervision; CBL will share monthly supplementary financial soundness indicators and quarterly financial statements with IMF staff up to June 2017. - CBL strengthening supervision through improved information sharing with Bank of Ghana and the College of Supervisors of the West Africa Monetary zone (WAMZ). ### Forensic audit, crisis framework, and deposit insurance - Forensic audit commissioned to KPMG covering transactions of FIBLL from 2006 through closure on June 4, 2016, to determine root causes of failure, including role of management, related parties, supervisory governance, and CBL’s open bank assistance of US$19 million. - Audit to be conducted within a period not exceeding six months. - Government will submit to Fund staff an interim report detailing preliminary findings (prior action for the combined fifth and sixth reviews). - Government committed to publish forensic audit findings, share final report with the Fund, and make results available to relevant judicial authorities consistent with Liberia’s laws (structural benchmark for the seventh review). - CBL reviewing gaps in safety net system: emergency liquidity, bank resolution powers and tools, and drafting related regulations. - With IMF Monetary and Capital Markets Department TA, CBL started developing operational procedures specifying terms and conditions for emergency liquidity assistance (structural benchmark for eighth review) and a deposit insurance scheme; progress delayed in 2016 due to focus on FIBLL. - CBL revised standing credit facility and reserve requirement regulation (both expected to be issued by early November, 2016). - CBL is developing a draft crisis management and resolution framework and commenced work on a framework for establishment of a deposit insurance scheme. - CBL staff receiving training on deposit insurance from AFRITAC West II; further TA requested from the IMF. - Commitment under the ECF to avoid undertaking quasi-fiscal activities to preserve financial position and ability to act as lender of last resort. ### Non-performing loans (NPLs) and potential Asset Management Company (AMC) - Study shows NPLs increased from US$54.8 million (15.5 percent of total loans) in June 2014 to US$92.4 million (24.6 percent of total loans) in October 2015. - CBL accelerating removal of NPLs through a strategy including mandatory write-offs of fully provisioned loans. - CBL and Liberian Bankers’ Association (LBA) resumed “name-and-shame” approach; publication of names of non-compliant delinquent borrowers in October 2016 has been effective. - Considering establishing an Asset Management Company (AMC); project in early stage. - CBL to intensify oversight of credit risk management by monitoring asset quality on a bank-by-bank basis and monitoring commercial banks to write off irrecoverable legacy NPLs per existing regulations. - CBL will consider modalities to strengthen individual banks’ balance sheets to restore medium-term profitability. ### Correspondent banking relationships (CBR) and AML/CFT - Global banks have severed at least one CBR with all Liberian banks. - Joint survey (IMF, FIU, CBL) found CBR withdrawal impacting trade finance, remittances, humanitarian aid deployment, and financial inclusion. - CBL actions: - aggregate metrics on the problem, - engage parent jurisdictions of respondent banks, - advocate for global bank action at international fora, - work closely with commercial banks. - CBL established a dedicated AML/CFT supervision unit and is working with FIU to address gaps in AML/CFT laws relating to financing of terrorist activities and criminalization of illicit trafficking of goods. - US Treasury and World Bank providing technical support; CBL increased participation with FATF, evidenced by participation in FATF Plenary Meetings. ### Safeguards, financial planning, and reserve management - Three-year financial plan implemented since beginning of 2016 aims to reduce CBL’s average annual operational deficit by about 33 percent from 2015 levels. - CBL will provide quarterly financial statements with comments on implementation of the CBL financial strategy (structural benchmark). - Board approved revised investment guidelines in December 2015 to align reserve management with international best practices. - Plan to set up an asset and liability committee (ALCO) to oversee risk management, balance sheet, and financial performance (structural benchmark for the eighth review). ### Financial infrastructure and inclusion reforms - All key components of the national payments system (RTGS, ACH, ACP, and SSSS) implemented fully and went live in April 2016. - CBL initiating work on the WAMZ national electronic payment switch. - Collateral registry established in June 2014 to perfect security interest in movable assets and establish priority of secured parties by date/time of registration. - CBL established 11 rural community finance institutions across eight counties for communities’ banks and issued a new regulation for credit unions to facilitate access to finance for the unbanked, including rural areas. - Amendment to the 2014 mobile money regulations allows financial institutions to apply for licenses. - CBL issued two licenses to mobile network non-bank financial institutions to provide mobile money services and provide a conduit for access to finance. ### External sector — WTO accession - Liberia became the 163rd WTO member on July 14, 2016. - WTO membership expected to help improve business climate in the medium term through lower cost of imports and wider export market access, with benefits fully materializing in the medium term. - Required legislative reforms associated with WTO membership will help improve domestic business environment and facilitate domestic and foreign investment. *International Monetary Fund — Selected excerpts from the cited chapter.* ### 54. The implementation of the ECOWAS Common External Tariff (CET) is proceeding ### _cr16392 - 54. The implementation of the ECOWAS Common External Tariff (CET) is proceeding ### ECOWAS Common External Tariff (CET) - Implementation by ECOWAS member states started in January 2014. - Liberia’s introduction delayed by the Ebola epidemic. - Liberia remains the only ECOWAS country yet to implement the ECOWAS Trade Liberalization Scheme (ETLS); the government will continue efforts to ensure CET implementation. - The CET was approved by the legislature in September, 2016. ### Business climate and energy infrastructure - Land Rights Act enacted to help secure land rights and define mechanisms for acquiring land. - Electricity access improving: - First HFO (Heavy Fuel Oil) power plant already operational. - Two more HFO plants expected to start operations over the coming months. - Mount Coffee hydropower project on-track; the first unit expected to produce electricity from December 2016. - New hydropower capacity expected to help reduce electricity cost (noted as currently among the highest on the continent). - Any tariff reduction will be carried out consistently with LEC’s financial viability. ### Statistics — data quality and updates - Government progress in improving statistics in national accounts, prices, and external sector. - LISGIS revising national account estimates with IMF technical assistance; preliminary estimates for 2008–13 have been made. - Additional national account and household surveys required to validate the revision; LISGIS intends to publish latest estimates with clear indication they are provisional. - CPI revision ongoing with IMF support; progress delayed by longer than expected processing of survey results. - CPI basket revision: - LISGIS finalizing cleaning of six months of 2014 HIES data. - Searching for experts to complete national accounts, CPI and poverty analysis work. - 2016 HIES is underway. - Plan to publish revised CPI weights and basket composition by end-January 2018. - Trade data: - CBL produced a preliminary customs-based trade dataset using ASYCUDA. - New data cover all businesses whose goods go through customs (unlike old BIVAC data). - CBL extending ASYCUDA-based dataset back to January 2010. ### Program issues and monitoring - Program monitored by quantitative performance criteria (PCs), structural benchmarks, and semi-annual reviews; definitions and reporting set out in the Technical Memorandum of Understanding (TMU). - Review schedule expectations: - Seventh review expected on or after March 30, 2017 based on end-December 2016 and other relevant PCs. - Eighth review expected on or after September 30, 2017 based on end-June 2017 and other relevant PCs. - Financing augmentations and access: - Completion of the fifth and sixth reviews will release additional ECF financing of 5 percent of quota (SDR 12.92 million), to be directed to the government budget; this augmentation is the first installment of additional financing to help fill a balance of payments gap. - A Memorandum of Understanding between the Ministry of Finance and Development Planning and the Central Bank of Liberia will be signed to structure the on-lending of the ECF augmentation resources to the central government. - An additional access of 5.7 percent of quota (SDR 14.76 million) will be allocated to the seventh and eighth reviews; the amount will be distributed equally to the two reviews and used for balance of payment support. ### Key quantitative performance figures (selected from Table 1; amounts in Millions of U.S. dollars unless otherwise indicated) - Floor on total revenue collection of the central government: - Dec. 16 Proposed Program: 216.7 - Dec. 16 Actual Program: 216.7 209.4 Not met - Jun. 17 Program: 473.7 452.9 Not Met - Program (column): 196.6 493.5 - Ceiling on new external arrears of the central government (continuous basis): 0.0 (Met across reported dates) - Ceiling on new domestic borrowing of the central government: - Dec. 16 Proposed/Program: 144.5 144.5 97.0 Met - Jun. 17 Program: 144.5 75.0 Met - Program column: 186.4 186.4 - Floor on CBL’s net foreign exchange position (includes SDR holdings net of ECF liabilities; SDR holdings converted at program exchange rate of 1 SDR=1.5844 US dollar): - Dec. 16 Proposed/Program: 184.3 184.3 164.4 Not met - Jun. 17 Program: 192.3 178.0 Not Met - Program column: 181.0 188.5 - Ceiling on CBL's gross direct credit to central government: - 352.9 352.9 352.8 Met - Subsequent entries: 352.9 353.4 Not Met; 353.9 372.0 - Ceiling on the present value of gross external borrowing by the public sector: - 97.0 97.0 0.0 Met - Subsequent entries: 97.0 0.0 Met; 101.2 140.7 - Ceiling on net domestic assets of the CBL: - 25.2 25.2 12.4 Met - Subsequent entries: 25.2 45.9 Not Met; 30.0 39.0 - Floor on social and other priority spending (percent of total actual expenditure, excluding contingencies): - 32.5 32.5 39.9 Met - 32.5 37.9 Met - 32.5 32.5 - Memorandum items: - Total spending on education, health, social development services (percent of total actual expenditure, excluding contingencies): 25.0 25.0 21.3 ... 25.0 23.6 25.0 25.0 - Programmed receipt of external budget support grants and committed external loans: 39.2 39.2 67.1 ... 140.0 96.1 66.2 88.4 ### Structural benchmarks and implementation status (selected highlights) - Fifth ECF review (End-December 2015 to End-May 2016) — notable outcomes and risks: - Extend IFMIS coverage to 15 externally-financed projects (End-December 2015): Met. - Launch a quarterly regular donor meeting (End-January 2016): Not met (completed with delay); institutionalized quarterly budget support donor meeting beginning February 2; Aid Management Unit holds regular quarterly project review meetings. - PIU database for domestically-financed investment projects (End-March 2016): Not met; Excel-based template developed but population delayed. - Submit economic and financial analyses of all PSIP projects before Department of Budget approval for FY2017 budget (End-March 2016): Met. - Publish quarterly reports on SOE financial performance for FY2016 Q1 and Q2 (End-March 2016): Not met (completed with delay); Q1-Q2 report published on May 19, 2016. - Expand externally-financed projects database to cover cost overruns, delays, and arrears (End-May 2016): Not met; delayed by limited IT commercial counterpart availability. - Finalize study of impact of December 2014 CBL measures to soften Ebola impact (End-December 2015): Not met (completed with delay); study finalized and submitted to IMF in February 2016. - Develop Emergency Liquidity Assistance and crisis management framework (End-March 2016): Not met; draft shared with IMF in September 2016. - Provide quarterly financial statements with comments on CBL financial strategy starting Q1 2016 (End-May 2016): Not met; delayed by migration to Temenos 24 software. - Sixth ECF review (End-June to October 2016) — notable outcomes and risks: - Submission of M&A spending and procurement plans covering at least 90 percent of PSIP (End-June 2016): Not met; target too ambitious given weak enforcement of PPC Act. - Extend IFMIS coverage to additional 10 large externally-financed projects (End-June 2016): Met; MFDP migrated 15 externally-financed projects in the Public Financial Management Unit. - Publish quarterly SOE financial reports for FY2016 Q3 and Q4 (End-September 2016): Met. - Modify reserve requirement implementation to allow average maintenance period (End-September 2016): Not met; regulations amended and shared in September 2016 but legal requirement delayed implementation. - Provide quarterly financial statements with comments for Q2 2016 (End-October 2016): Met. ### Proposed and upcoming structural benchmarks (selected) - Proposed prior actions for Fifth and Sixth reviews: - PIU to compile and develop database covering domestically-financed investment projects (including total project cost, actual expenditure, future commitments, cost overruns, implementation delay, and arrears). - Submit interim report of forensic audit of First International Bank of Liberia Limited to be conducted by an internationally reputable firm. - Proposed Structural Benchmarks for the Seventh ECF Review (End-December 2016 to End-May 2017): - Expand database of externally-financed projects to cover cost overruns, delays, and payment arrears (End-December 2016) — postponed from the fifth ECF review. - Formalize agreement with the four largest foreign concession companies, including length of deferment (no more than four years from FY2015/16) and payment schedule (End-February 2017). - Publish quarterly SOE financial reports for FY2016/17 Q1 and Q2 (End-March 2017). - Submit final forensic audit report of First International Bank of Liberia and make results available to judicial authorities (End-May 2017). - Develop framework for Emergency Liquidity Assistance and bank crisis management (End-May 2017) — postponed from the sixth ECF review. - Provide Q1 2017 quarterly financial statements with comments on CBL financial strategy (End-May 2017). - Proposed Structural Benchmarks for the Eighth ECF Review (End-December 2016 to End-September 2017): - At least 50 percent of M&As with budget allocation lines to submit spending and procurement plans for recurrent and PSIP expenditure based on draft FY2017/18 budget (End-June 2017). - Publish SOE financial reports for FY2016/17 Q3 and Q4, with Q4 report to include summary financial statements (End-September 2017). - Set up an asset liability committee (ALCO) at CBL to oversee risk management, balance sheet, and financial performance (End-April 2017). - Provide Q2 2017 quarterly financial statements with comments on CBL financial strategy (End-September 2017). *Source: _cr16392 - 54. The implementation of the ECOWAS Common External Tariff (CET) is proceeding (IMF PDF chapter).* ### 1. Quantitative performance criteria have been set for end-December 2016 and end-June 2017. ### 1. Quantitative performance criteria have been set for end-December 2016 and end-June 2017. ### Definitions and scope - Government (GoL): the Central Government of Liberia; excludes legally autonomous state-owned enterprises whose budgets are not included in the central government budget. - Public sector: central government, the Central Bank of Liberia (CBL), and public enterprises (enterprises and agencies in which the government holds a controlling stake—typically owns more than 50 percent of the shares, but which are not consolidated in the budget). - Central government operations: presented in U.S. dollar with all revenues and expenditures denominated in Liberian dollar converted at the end of period exchange rate. ### Revenue measurement and GoL accounts - Total Central Government revenue collection: all tax and nontax receipts (excluding contingent revenues) transferred into GoL Revenue accounts at the CBL, including income and transfers from state-owned enterprises and public institutions (excluding external loans and grants). - GoL accounts at the CBL include: - GoL Revenue Accounts in U.S. dollars - Revenue Accounts in Liberian dollars - Civil Servants Payroll Accounts in Liberian dollars - General Operations Accounts in U.S. dollars - General Operations Accounts in Liberian dollars - GoL Special Rice Fund - All Ministries and Agencies operational and other accounts - Revenues of the GoL are measured on the basis of cash deposits in the Revenue Account in U.S. dollars, the Revenue Account in Liberian dollar, and the GoL Special Rice Fund converted to U.S. dollars using the end of period exchange rate. - Any new accounts opened by the GoL at the CBL or at any other local financial agency shall be reported to the IMF by the Ministry of Finance and Development Planning through the Office of the Comptroller and Accountant General. ### Social and energy spending (definition and composition) - Social spending (for end-December 2016 and end-June 2017): education, health, social development services, and energy sector spending. - Education, health, and social spending: payments from the FY2016/17 budget of listed units (payment vouchers approved by the Ministry of Finance and Development Planning (MFDP) excluding contingent expenditure). - Energy spending: payments from the FY2016/17 budget and off-budget spending financed by external loans and grants. - Evaluation basis: share of total expenditure (payment vouchers approved by the MFDP). - Total expenditure: spending under the FY2016/17 budget, excluding contingent expenditure tied to contingent revenues, and off-budget energy spending financed by external loans and grants. - Listed education entities include: Ministry of Education; University of Liberia; Monrovia Consolidated School System (MCSS); Booker Washington Institution (BWI); Gbarnga Central High; Forestry Training Institution (FTI); Cuttington University (CUC); National Commission on Higher Education (NCHE); W. V. S. Tubman Technical College (WVSTC); West African Examination Council (WAEC); Liberia Institute for Public Administration; Agricultural and Industrial Training Bureau; Zorzor Rural Teacher Training Institute; Webbo Rural Teacher Training Institute; Kakata Rural Teacher Training Institute; Bassa County Community College; Bomi County Community College; Nimba Community College; Lofa Community College; Gboveh Community College. - Listed health entities include: Ministry of Health; JFK Medical Center (JFKMC); Phebe Hospital; LIBR; Jackson F. Doe Medical Hospital; Liberia Medicines and Health Regulatory Authority; National Aids Commission. - Social development services entities include: Ministry of Youth & Sports; Ministry of Gender Children & Social Protection; Liberian Refugee Repatriation and Resettlement; National Commission on Disabilities; National Veterans Bureau; Liberia Agency for Community Empowerment. - Energy sector items include: Thermal diesel (HFO) power station; Transmission and distribution; Mount Coffee rehabilitation, transmission, and distribution to Bushrod Island. - Adjustment: Social and other priority spending targets will be adjusted downward by the undisbursed amounts from budgeted external financing (grants and borrowing) allocated to projects in the energy sector within the public sector investment program. ### Domestic borrowing and arrears - New domestic borrowing of the Central Government: new domestic claims by residents on the central government since the start of the program; measured by change in the stock of all outstanding claims on the central government by the banking system and issuance to the nonbank sector. Claims in Liberian dollars converted at end of period exchange rate. - Contingent financial liabilities of the central government (external and internal) include but are not limited to: - (i) any guarantee, direct or implicit, of the performance or payment obligations of any private or public entity; - (ii) any agreement, including any indemnification agreement, to hold another private or public entity harmless or to provide insurance or similar protection against risk of loss; - (iii) any guarantee of economic return to another public or private entity including any guarantee of profit, income or rates of return; - (iv) any agreement to provide financial support to another private or public entity in connection with specified activities of such other entity; - (v) any other agreement as provided by regulations under Liberia’s Public Financial Management Act. - New domestic arrears/payables of the government: difference between government payment commitments and actual payments made, allowing a processing period of no more than 90 days from the date of commitment. Actual payments are defined as the date of issuance of checks by the MFDP. Government payment commitments include all expenditure for which commitment vouchers have been approved by the Expenditure Department and expenditures now automatically approved (wages and salaries, pensions, debt payments to the CBL and commercial banks, CBL bank charges, transfers of ECOWAS levies into the ECOWAS account). ### External borrowing and debt definitions - Gross external borrowing by the public sector: cumulated new public sector external debt as from July 1, 2016, excluding borrowing for reserve management purposes by the CBL. - External debt (public sector): debt owed to non-residents; applies to the meaning in paragraph 8(a) of the Guidelines on Public Debt Conditionality and to commitments contracted or guaranteed for which value has not been received. Considered contracted or guaranteed for program monitoring once all conditions for entrance into effect have been met, including ratification, if required. - Concessional debt definition: a debt is concessional if, on the date of signature, the ratio between the present value of debt and the face value of the debt is less than 65 percent (equivalent to a grant element of at least 35 percent). - Discount rate for loans signed after July 3, 2014: 5 percent. - Discount rate for loans signed before July 3, 2014: determined on the basis of the commercial interest reference rates published by the OECD on the date of signature. - Present value (PV) of new external debt: debt contracted or guaranteed by the public sector with original maturities of one year or more, including debt for which value has not yet been received and private debt for which official guarantees have been extended. - PV on new external debt adjustor: program ceiling for PV of new external debt will be adjusted upward up to a maximum of 5 percent of the external debt ceiling set in PV terms if deviations from the PC on the PV of new external debt are prompted by a change in financing terms (interest, maturity, grace period, payment schedule, upfront commissions, management fees). The adjustor cannot be applied when deviations are prompted by an increase in the nominal amount of total debt contracted or guaranteed. - Government commitment on arrears: the government undertakes not to incur payments arrears on external debt that it owes or guarantees, except for external payments arrears arising from government debt that is being renegotiated with creditors, including Paris Club creditors. Arrears on external debt are defined as any unpaid obligation on the contractual due date; if creditor grants a grace period, arrears are incurred following expiration of the grace period. ### CBL credit, reserves, and monetary aggregates - CBL gross direct credit to the central government: sum of claims on the central government, including loans, advances, guarantees and contingent financial liabilities (as defined), accounts receivable, bridge financing, overdrafts, and any government debt instrument as defined in the monetary survey template, excluding CBL purchases of treasury bills in the secondary market. - Overdraft: negative outstanding balance of the consolidated government account at the CBL (sum of GoL Revenue Accounts in U.S. dollars; Revenue Accounts in Liberian dollars; Civil Servants Payroll Accounts in Liberian dollars; General Operations Accounts in U.S. dollars; General Operations Accounts in Liberian dollars). - Gross credit to government is expressed in U.S. dollars. Claims denominated in Liberian dollars are valued at the end-of-period exchange rate. - Net foreign exchange position of the CBL: difference between gross reserve assets and gross reserve liabilities; presented in U.S. dollars. - Assets and liabilities denominated in SDRs are valued at a fixed rate of the U.S. dollar against SDR 1.5844. - Other currencies are valued at cross rates against the U.S. dollar as of end-June 2012. - Gross reserve assets of the CBL include: - (i) monetary gold holdings of the CBL; - (ii) holdings of SDRs; - (iii) the reserve position in the IMF; - (iv) foreign convertible currency holdings; - (v) foreign denominated deposits held in central banks and other banks; - (vi) loans to foreign banks redeemable upon demand; - (vii) foreign securities; - (viii) other unpledged convertible liquid claims on non-residents. - Exclusions: foreign currency claims on residents; capital subscriptions in international institutions; foreign assets in nonconvertible currencies; gross reserves encumbered or pledged (including blocked assets used as collateral, assets lent by CBL to third parties not available before maturity and not marketable, foreign reserves blocked for letters of credit). - Gross reserve liabilities of the CBL: sum of: - (i) outstanding short-medium term liabilities of the CBL to the IMF; - (ii) all short-term foreign currency liabilities of the CBL to non-residents with an original maturity of up to, and including, one year; - (iii) all foreign currency deposits of domestic banks and government with the CBL. - SDR allocations are excluded from gross reserve liabilities. - Net domestic assets of the CBL: base money minus the net foreign assets of the CBL converted into United States dollars at program exchange rates as defined in paragraph 14. - Base money: stock of Liberian dollars in circulation + reserve deposits of commercial banks in Liberian dollars at the CBL + sight deposits of commercial banks in Liberian dollars at the CBL + vault cash of commercial banks in Liberian dollars. - Net foreign assets of the CBL: foreign assets minus foreign liabilities of the CBL balance sheet. ### Adjustors and special provisions - External financing adjustor: Bridge financing from the CBL is available for shortfalls in programmed receipt of external budget support and committed external financing up to a maximum of US$20 million. - If utilized, the floor on net foreign exchange position will adjust downwards and ceilings on CBL gross credit to government and CBL net domestic assets adjust upwards by the extent this financing is utilized, up to a maximum of US$20 million. - The adjustor is calculated on a cumulative basis from the start of the fiscal year (July 1). - Adjustor for the December 2016 augmentation of access tied to completion of the fifth and sixth ECF review: - The PC for the net foreign reserves floor would be lowered and the ceilings on both CBL’s gross direct credit to the central government and CBL’s net domestic assets would be raised by the full amount of the ECF augmentation released on the completion of the fifth and sixth reviews to allow for on-lending of the equivalent of the additional Fund support. ### Cumulative Program External Budget Support and Budgeted External Loan Disbursements (Millions of U.S. dollars) — FY2017 - Total Budget Support by quarter: Q1 6; Q2 61; Q3 7; Q4 15; Total 88 - Grant by quarter: Q1 6; Q2 42; Q3 7; Q4 15; Total 70 - Loan by quarter: Q1 -; Q2 18; Q3 -; Q4 -; Total 18 ### Program monitoring — Data reporting to the IMF (selected obligations, frequency, and timing) - Fiscal (MFDP): - Monthly fiscal reconciliation reports, where cash revenue and expenditure with spending commitments are reconciled — Monthly — Within three weeks after the end of the month. - Detailed reports on monthly core and contingent revenue and expenditure on both a cash and a commitment basis by budget line and a completed summary table on central government operations — Monthly — Within three weeks after the end of the month. - Outstanding appropriations, allotments and commitments, and disbursements for line ministries and agencies — Monthly — Within three weeks after the end of the month. - Detailed report on disbursements of budget support, grants and budgeted and off-budget loans, by donor and by project — Monthly — Within three weeks after the end of the month. - A table providing the end-of-period stock of domestic arrears accumulated and payments made on arrears during the program period, by budget category (wages, goods and services, etc.), including payment and stock of existing arrears from the previous ECF Arrangement — Monthly — Within three weeks after the end of the month. - The amount of new external debt contracted or guaranteed by the public sector — Monthly — Within three weeks after the end of the month. - The amount of new domestic debt contracted or guaranteed by the public sector — Monthly — Within three weeks after the end of the month. - A detailed report on monthly payments on external debt by category and creditors and the stock of external debt — Monthly — Within three weeks after the end of the month. - A detailed report on monthly payments on domestic debt by category and the domestic debt stock — Monthly — Within three weeks after the end of the month. - Quarterly reports of state owned enterprise financial operations submitted to the MFDP — Quarterly — Within 45 days after the end of the quarter. - The report on the status of implementation of the performance criteria and structural benchmarks specified in Tables 1, 3, and 4 of the MEFP — Monthly — Within three weeks after the end of the month. - CBL reporting: - Monthly sweeping reports showing the end of the month balances of the GoL accounts at the CBL and of all operations and other accounts at the CBL of the M&As — Monthly — Within three weeks after the end of the month. - End-of-month balances of all operating and other accounts at the CBL of the line ministries and agencies receiving budgetary appropriations — Monthly — Within three weeks after the end of the month. - End-of-month balances of all operating and other accounts at the CBL of all other public Institutions — Monthly — Within three weeks after the end of the month. - The balance sheet of the CBL in the monthly monetary survey — Monthly — Within three weeks after the end of the month. - The full monthly monetary survey of the monetary sector — Monthly — Within three weeks after the end of the month. - The detailed table of commercial banks’ loans and advances by sector — Monthly — Within three weeks after the end of the month. - The core set of financial soundness indicators for the banking system, including the overall profitability of the banking sector — Quarterly — Within three weeks after the end of the Quarter. - The core set of financial soundness indicators for GN bank, including capital, liquidity, profitability, asset quality, and income position — Monthly — Within four weeks after the end of the month up to June 2017. - Abridged financial statements of GN bank including its income statement that are regularly published — Quarterly — Within four weeks after the end of the quarter up to end June 2017. - The report on the results of foreign exchange sales/purchases by the CBL through foreign exchange auctions held by the CBL and other currency exchange facilities — Weekly — Within a week. - A report on the results of T-bills and CBL bills issuances — Monthly — Within one week after the end of month. - Regular sale of U.S. dollars by the MFDP to the CBL, including amount date, and rate of exchange — Monthly — Within one week after the end of month. - Daily foreign exchange rates — Daily — Every working day. - Interest rates — Monthly — Within three weeks after the end of month. - A detailed report on liquidity forecasting up to 6 months ahead, including: (i) projected government’s cash flows (revenue, expenditure, repayments and disbursements of loans including T-bills) by currency; (ii) projected flows to the CBL’s net exchange position, including but not limited to planned U.S. dollar sales in the foreign exchange auction, and planned foreign exchange transactions with the Government; and (iii) projected flows of Liberian dollar liquidity, including but not limited to planned CBL Notes issuance — Monthly — Within six weeks after the end of month. - Real sector (CBL): - Production data in value and volume — Quarterly — Within six weeks after the end of the quarter. *Source: _cr16392 - 1. Quantitative performance criteria have been set for end-December 2016 and end-June 2017.* ### 23. The above data and reports will be provided electronically to the IMF Resident Representative ### _cr16392 - 23. The above data and reports will be provided electronically to the IMF Resident Representative ### Provision of Data and Information to the Fund - The above data and reports will be provided electronically to the IMF Resident Representative to Liberia, with copies to the local IMF economist, Mr. Deline (adeline@imf.org) for further transfer to the African Department of the IMF in Washington, D.C. - The authorities will provide the Fund with such information as the Fund requests in connection with the progress in implementing the policies and reaching the objectives of the program. ### Guidelines on Performance Criteria with Respect to External Debt (Excerpt) - Definition of “debt” (Paragraph 8(a)): - Debt means a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more payments in the form of assets (including currency) or services at some future point(s) in time; these payments discharge principal and/or interest liabilities. - Primary forms of debt: - (i) Loans: advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets equivalent to fully collateralized loans (such as repurchase agreements and official swap arrangements). - (ii) Suppliers’ credits: contracts where the supplier permits the obligor to defer payments until sometime after delivery of goods or services. - (iii) Leases: arrangements under which property is provided for use for specified period(s) shorter than the total expected service life; for guideline purposes, debt equals the present value (at lease inception) of all lease payments expected during the agreement period excluding payments covering operation, repair or maintenance. - Paragraph 8(b): - Under this definition, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. - Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. ### Relations with the Fund — Key Statistics and Arrangements (As of October 31, 2016) - Membership Status: Joined: March 28, 1962. Article XIV - General Resources Account: - Quota: 258.40 SDR Million (100.00 percent of quota) - Fund holdings of currency: 226.08 SDR Million (87.49 percent of quota) - Reserve Tranche Position: 32.33 SDR Million (12.51 percent of quota) - SDR Department: - Net cumulative allocation: 123.98 SDR Million (100.00 percent of allocation) - Holdings: 153.64 SDR Million (123.93 percent of allocation) - Outstanding Purchases and Loans: - RCF Loans: 32.30 SDR Million (12.50 percent of quota) - ECF Arrangements: 83.41 SDR Million (32.28 percent of quota) - Latest Financial Arrangements (dates and amounts approved/drawn): - ECF Nov. 19, 2012 – Dec. 31, 2016: Amount Approved 83.98 SDR Million; Amount Drawn 69.21 SDR Million - ECF Mar. 14, 2008 – May 17, 2012: Amount Approved 247.90 SDR Million; Amount Drawn 247.90 SDR Million - EFF Mar. 14, 2008 – Sep. 25, 2008: Amount Approved 342.77 SDR Million; Amount Drawn 342.77 SDR Million - Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - Forthcoming Principal and Charges/Interest schedules: - 2016: Principal 2.10; Charges/Interest 0.00; Total 0.00 - 2017: Principal 10.46; Charges/Interest 0.00; Total 2.10 - 2018: Principal 20.04; Charges/Interest 0.20; Total 10.46 - 2019: Charges/Interest 0.16; Total 20.04 ### HIPC Initiative and IMF Assistance Delivery - Implementation of HIPC Initiative: Enhanced Framework - Decision point date: March 2008 - Assistance committed by all creditors (US$ Million): 2,739.20 - Of which: IMF assistance (US$ Million): 721.10 - (SDR equivalent in millions): 440.90 - Completion point date: June 2010 - Disbursement of IMF assistance (SDR Million): - Assistance disbursed to the member: 440.90 - Interim assistance: 30.14 - Completion point balance: 410.76 - Additional disbursement of interest income: 10.99 - Total disbursements: 451.89 - Delivery of Debt Relief at the Completion Point: - Debt relief (SDR Million): 548.53 - Financed by: Liberia Administered Account 116.20; Remaining HIPC resources 432.33 - Debt relief by facility (SDR Million), Delivery Date June 2010: - GRA: 342.77; PRGT: 205.76; Total: 548.53 - Implementation of Catastrophe Containment and Relief (CCR): - Board Decision Date: Feb 23, 2015 - Amount Committed (SDR million): 25.84 - Amount Disbursed (SDR million): 25.84 ### Safeguards Assessment — Central Bank of Liberia (CBL) - November 2015 update safeguards assessment confirmed a weak governance and control environment at the CBL. - Key concerns being addressed by program measures, including: - Forensic audit - Strengthening CBL investment policies - Approval of CBL financial plan (prior actions for the 4th review) - Establishment of an emergency liquidity assistance (ELA) framework (structural benchmark for the seventh review) - Remaining recommendations: - Legal amendments to align the CBL Act with best practices - Strengthening the internal audit function - Enhancing audit and control oversight ### Exchange Rate Arrangement and Recent Consultations - Exchange rate system: free of restrictions on payments for current and capital transfers. - Currencies: Liberian dollar (L$) and U.S. dollar (also legal tender). - De facto exchange rate regime: ‘other managed arrangement’ since November, 2011; de jure classification: ‘managed floating’. - CBL intervenes to smooth volatility. - Exchange rate at November 30, 2016: L$100.5 = US$1 (mid-point between buying and selling rates). - Recent Board discussions and consultations: - Ad-hoc review under ECF (augmentation of access) discussed September 26, 2014. - Request for RCF and debt relief under CCRT discussed February 23, 2015. - Fourth review of ECF discussed December 21, 2015. - 2016 Article IV consultation discussions held April 20–May 4, 2016; staff report (Country Report No. 16/238) discussed by the Executive Board on July 8, 2016. ### Technical Assistance and Capacity-Building (2014–16) - Fiscal Affairs Department: - Revenue Administration: February–March and April-May 2014, November 2014–April 2015 (Remote), July–August, September-October, and November–December 2015, January, March, April, and May, November 2016 - Long-term residential advisor deployed in the LRA since January 2016. - Public Financial Management Reform: January, February, November 2016 - Natural Resource Revenue: January and March 2016 - Fiscal Decentralization: December 2015 - Capacity Building and Sector Audit Training (including Computer assisted Audit Techniques in Telecommunications): April 2014 - Fiscal Framework for a New Model Petroleum Production Sharing Contract and Revenue Modeling: June 2014 - Budget Formulation and Public Sector Investment Plan: June 2015 - Public Investment Management Assessment: July 2016 - Statistics Department: - Balance of Payments: July 2014 and January–February, June–July 2016 - Government Financial Statistics: September 2016 - National Accounts and Consumer Price Index: May 2014, April–September (Remote), June–July, November 2015, March, July, August, September 2016 - Monetary and Capital Markets Department: - Banking Supervision: January, April, July 2014; February, April–May, August, November 2016 - Central Bank Accounting: August 2016 - Monetary Analysis and Payment System: November 2016 - Basel II/III Training Workshop: November 2016 - Liquidity Forecasting: May 2014, August 2015, and January–February 2016 - Crisis Preparedness and Management Framework: October–November 2015 ### IMF Resident Representative - A resident representative has been posted in Monrovia since April 2, 2006. - Mr. Sobolev assumed the position in July 2009; term expired in September 2013. - Mr. Amo-Yartey assumed the post as a new resident representative on May 1, 2014. ### Joint World Bank–IMF Work Program, 2012–17 (Selected Items, As of November 16, 2016) - IMF work program highlights: - Negotiation successor ECF July–Sept. 2012; ECF Program approved on Nov. 19, 2013 - Article IV Consultation July–Sept. 2012; Nov. 2012 Completed - First, Second, Third reviews of ECF Program (March 2013; Sept. 2013; March 2014) — Completed - Ad-hoc review of ECF Program for augmentation of access — September 26, 2014 — Completed - Request for RCF and Debt Relief under the CCR Trust — February 23, 2015 — Completed - Fourth Review of ECF Program — October 2015 — December 2015 — Completed - Article IV Consultation April 2016 — July 2016 — Completed - Joint Fifth and Sixth review of ECF program — October 2016 — December 2016 — On-going - Article IV Consultation April 2017 — July 2017 — On-going - WB/IMF joint product: Updated Debt Sustainability Analysis — October 2015 — December 2015 — Complete - Coordination items: - Fund requests World Bank regular updates on the Liberia Reconstruction Trust Fund and disbursements. - World Bank requests IMF regular updates of performance under the Fund-supported program, macroeconomic projections and data following each IMF mission. ### Relations with the World Bank Group — Strategy and Active Projects (As of November 16, 2016) - CPS (2013–17) overarching objective: support Government’s Agenda for Transformation (AfT) to contribute to sustained growth, poverty reduction and shared prosperity while exiting fragility and building resilience. - CPS pillars aligned with AfT: (i) Economic Transformation; (ii) Human Development; (iii) Governance and Public Sector Institutions. - IDA allocation for CPS period approximately US$308 million. - IFC expected investment average US$25–35 million per year; current IFC portfolio exposures listed in exact amounts in the source. - Response to Ebola and commodity price shocks: - World Bank commitment of some US$177 million from the Crisis Response Window (CRW). - Additional US$20 million from the Crisis Response Window approved October 26 to cover financing shortfall from commodity price shock. - Active IDA projects: - Fourteen active IDA projects with total commitment approximately US$400.8 million; undisbursed approximately US$188.3 million. - Four new projects approved in FY2016 totaling US$32.0 million, including: - Liberia Urban Water Supply Project (approved March 24, 2016) — US$10 million; objectives: increase access to piped water in Monrovia and improve LWSC operational efficiency; components: infrastructure improvements and capacity building for LWSC. - Liberia Social Safety Net Project (approved April 28, 2016) — US$10 million; objectives: establish national safety net delivery system and provide income support to extremely poor and food insecure households; components: (i) Strengthening of National Social Safety Net System; (ii) Cash Transfers to about 10,000 households; (iii) Project Management and Capacity Building. - Liberia Youth Opportunities Project (approved November 6, 2015) — US$10 million; objectives: improve access to income generation opportunities for targeted youth and strengthen capacity to implement cash transfer program; components: (i) Pre-employment Social Support and Household Enterprises for Urban Youth; (ii) Productive Public Works and Life Skills Support; (iii) Capacity Building for Cash Transfer Program; (iv) Project Implementation and Coordination. *Prepared by The African Department (In consultation with other departments) — Excerpted content from the informational annex.* ### 9. The Liberia Renewable Energy Access Project was approved on January 11, 2016 for ### _cr16392 - 9. The Liberia Renewable Energy Access Project was approved on January 11, 2016 for ### Liberia Renewable Energy Access Project - Approved on January 11, 2016 for US$27 million, including US$25 million from the Strategic Climate Fund. - Objective: to increase access to electricity and to foster the use of renewable energy sources. - Three main components: - Component 1 (largest): supports expansion of access to reliable electricity to about 9,000 new users in an economic and agricultural area in the North-Western part of Liberia, one of the hardest hit during the Ebola crisis. - Component 2: provides technical assistance to support the government’s program to expand decentralized electrification and foster the use of renewable energy. - Component 3: supports development of a national market for solar systems that could help provide access to modern energy services to more than 100,000 people. ### Economic and Sector Work - World Bank Public Expenditure Review (2013): - Explores options for fiscal space enlargement given large additional expenditure required to implement the government’s second Poverty Reduction Strategy - the Agenda for Transformation. - Focus areas: (a) improving the efficiency of public expenditure; (b) increasing the amount of external grants; (c) mobilizing greater revenue from taxes, non-tax revenue and natural resources; and (d) public sector borrowing. - Human development Public Expenditure Review (2012): - Covers education, health and social protection sectors. - Notes public spending on human development in Liberia is low by Sub-Saharan Africa (SSA) standards. - Examines funding sources and levels, budgetary allocations across and within sectors, and quality, equity and efficiency of public expenditure on human development. - Policy note "Creating More and Better Jobs in Liberia: Issues and Options (2014)": - Addresses perceived relatively high rates of joblessness in Liberia’s post-conflict economy. - Highlights critical knowledge gaps and limitations of traditional labor market metrics in capturing informal sector and underemployment. - Draws on quantitative information from the 2007 and 2010 Core Welfare Indicator Questionnaires Survey (CWIQS); the 2010 Labor Force Survey; the 2012 Poverty Note; and other quantitative and qualitative analyses from the last five years. - Focuses on demand- and supply-side issues of the labor market and effects of employment protection legislation. ### Financial Relations (as at November 16, 2016) — Active and Disbursing Projects (selected figures) - Portfolio totals shown in table header: 400,800,000.00 (Approved Amount), 188,286,235.93 (Disbursed), 167,600,314.07 (Outstanding Balance). - Selected project lines (Approved Amount; Approval Date; Closing Date; Undisbursed Balance; Disbursed Outstanding Balance): - Liberia Youth Opportunities Project: 10,000,000.00; 6-Nov-15; 31-Dec-20; 9,817,560.00; 0.00 - Liberia Health Systems Strengthening: 10,000,000.00; 30-May-13; 30-May-18; 3,467,552.80; 5,668,232.20 - Liberia: Public Sector Modernization Project: 2,000,000.00; 10-Feb-14; 30-Sep-19; 34,985.01; 1,873,984.99 - Liberia Accelerated Electricity Expansion Project (LACEEP): 35,000,000.00; 30-May-13; 30-Jun-18; 16,703,972.79; 15,203,097.21 - LR Smallholder Tree Crop Revitalization Support Project: 15,000,000.00; 5-Jun-12; 30-Nov-18; 5,050,199.82; 8,176,235.18 - WAPP APL4 (Phase 1) - Cote d'Ivoire, Sierra Leone, Liberia, and Guinea Power System Re-development: 144,500,000.00; 31-May-12; 31-Oct-19; 103,920,747.28; 23,298,467.72 - Liberia Integrated Public Financial Management Reform Project: 5,000,000.00; 15-Dec-11; 30-Jun-17; 21,217.22; 4,342,142.78 - Liberia Road Asset Management Project - LIBRAMP: 50,000,000.00; 20-Sep-12; 30-Jun-22; 27,045,734.44; 17,951,415.56 - Liberia Road Asset Management Project - LIBRAMP: 67,700,000.00; 7-Jun-11; 30-Jun-22; 19,250,288.11; 39,518,716.89 - Emergency Monrovia Urban Sanitation Project (EMUS): 4,000,000.00; 7-Apr-11; 30-Dec-16; 0.00; 3,545,230.00 - West Africa Agricultural Productivity Program APL (WAAPP-1C): 6,000,000.00; 24-Mar-11; 31-Dec-16; 0.00; 5,317,845.00 - LIBERIA Electricity System Enhancement Project (LESEP): 22,000,000.00; 26-Jan-12; 31-May-17; 2,053,518.20; 17,308,891.80 - LIBERIA Electricity System Enhancement Project (LESEP): 10,000,000.00; 30-Nov-10; 31-May-17; 190.08; 8,862,884.92 - LR-Urban and Rural Infrastructure Rehabilitation Project: 19,600,000.00; 24-Jan-14; 30-Jun-17; 920,270.18; 16,533,169.82 - Note: "Amounts may not add up to original principal due to changes in the SDR/US exchange rate since signing." ### IDA Disbursements and Debt Service (Since HIPC Completion Point) — US$ Million - Period columns and totals: - Jul 2010–Jun 2011: Total disbursements 61.83; Repayments 0.33; Net disbursements 61.49; Interest and fees 0.05 - Jul 2011–Jun 2012: Total disbursements 55.27; Repayments 0.00; Net disbursements 55.27; Interest and fees 0.12 - Jul 2012–Jun 2013: Total disbursements 40.18; Repayments 0.00; Net disbursements 40.18; Interest and fees 0.25 - Jul 2014–Jun 2015: Total disbursements 183.6; Repayments 0.00; Net disbursements 183.6; Interest and fees 0.79 - Jul 2015–Jun 2016: Total disbursements 131.0; Repayments 0.00; Net disbursements 131.0; Interest and fees 0.96 - Jul-Sep 2016: Total disbursements 64.4; Repayments 0.00; Net disbursements 64.4; Interest and fees 0.34 ### Relations with the African Development Bank (as of November 10, 2016) - Portfolio: - 19 active AfDB projects in Liberia plus trust-funded projects. - Total commitment approximately UA 273.86 million, equivalent to US$377.93 million; about 30 percent is disbursed. - Selected AfDB-supported projects and features: 1. Integrated Public Financial Management Reform Project (IPFMRP): AfDB UA 3.0 million grant; US$28.55 million project; five components (i)–(v); support ends on March 31, 2017. 2. Regional Payment Systems Development Project: UA 5 million supplementary grant; enables Liberia to join WAMZ Payments System Development Project; closes on December 31, 2016. 3. Liberia–Urban Water Supply and Sanitation Project (UWSSP): UA 26.1 million grant; aims to improve water and sanitation in Monrovia, Buchanan, Kakata, and Zwedru; components (i)–(iv). 4. Agriculture Sector Rehabilitation Project (ASRP): UA 18.4 million project (UA 12.5 million AfDB grant, UA 3.4 million IFAD grant, balance in kind); covers eight of fifteen counties; support ends on December 31, 2016. 5. Smallholder Agricultural Productivity Enhancement and Commercialization (SAPEC) Project: UA 34.08 million; funding from GAFSP (UA 29.08 million grant), a UA 4.0 million ADF loan, UA 1.0 million in-kind government contribution; implemented 2014–2018 in 12 of 15 counties. 6. Maryland Oil Palm Plantation (MOPP)—Private Sector: project cost USD 203.3 million (USD 164.9 million industrial component; USD 38.4 million out grower scheme); implementation issues and ongoing negotiations to cancel the loan. 7. Equity investment of US$1.2 million in Access Bank (ABL); capital increase of US$209,000 approved in 2012; ABL also benefits from a US$460,000 grant funded by the Fund for Africa Private Sector Assistance (FAPA) approved in 2015. 8. Fostering Innovative Sanitation and Hygiene in Monrovia: Euro 1.2 million grant; grant ends in February 2017. 9. Paving Fish Town–Harper Road Project (Phase I): estimated cost UA 43.04 million including GoL counterpart funding of UA 1.0 million; Harper–Karloken section (50km). 10. Mano River Union (MRU) Road Development and Transport Facilitation Program: total program net cost UA 221.97 million; Liberia’s portion UA 76.88 million loan from ADF and TSF; covers Karloken-Fish Town (80 km) and Harper-Cavalla junction (16 km); execution June 2015 to June 2019. 11. Regional Electricity Interconnection Project (CLSG): constructs a 1,357-km-long double circuit high voltage (225 kV) line; overall cost UA 331.51 million; Bank Group contribution UA 128.15 million (38.7 percent); implementation 2014–17; project will raise the average electricity access rate in the four countries from 28 percent in 2012 to 33 percent by 2017; some 24 million residents in the impact area will benefit. - Ebola Response Projects (selected): - Ebola Fight Back Budget Support Program: UA 100.2 million multinational program; Liberia’s portion UA 40.2 million loan; support ends in December 2016. - Strengthening West Africa Public Health Systems (SWAPHS): UA 40 million multinational project; USD 11.4 million grant directly allocated to Liberia. - Post Ebola Recovery Social Investment Fund (PERSIF) (UA 2 million grant): provides seed funding for a Social Investment Fund. ### Technical Assistance and Trust Fund Support (selected) - Promoting local, participatory governance for County Development Funds: UA 114,833 grant; capacity building for 750 youths; awareness and monitoring of County Development and Social Development Funds. - Capacity Building and Technical Support to the National Housing Authority: UA 240,000 grant; capacity development for architects, engineers, draftsmen and surveyors and improvements to internal functions. - Technical Assistance and Capacity Building Support to the Liberia Institute of Statistics and Geo-Information Services (TCB-LISGIS): UA 500,000 grant to strengthen LISGIS capacity for HIES and related surveys to monitor Agenda for Transformation 2012–17 and the Bank’s Country Strategy Paper 2013–17. - Youth Entrepreneurship and Employment Project (YEEP): US$2.3 million project funded by TSF Pillar III and FAPA; aims to improve entrepreneurial skills of youth and strengthen capacities of tertiary institutions to deliver entrepreneurship and employment programs. - Program of Assistance to Trade Support Institutions in Liberia (PATSIL): UA 658,735 project focused on human capacity building for trade support institutions and improvement of institutional productivity in the Ministry of Commerce and Industry and National Ports Authority. ### Statistical Issues (as of September 30, 2016) - General assessment: Data have serious shortcomings that significantly hamper surveillance. - Areas most affected: national accounts, government finance, and balance of payments statistics. - National Accounts: - Comprehensive national accounts data are not available. - Fund staff estimate GDP by activity using the production approach and primary source data provided by the Liberia Institute of Statistics and Geo-Information Services (LISGIS). - Estimates for GDP by expenditure are not available. - During May–September 2012, LISGIS, assisted by a World Bank consultant, conducted (a second round) National Accounts Annual Survey (NAAS 2012) collecting information for the years 2010 and (text truncated in source). *Source: _cr16392 - 9. The Liberia Renewable Energy Access Project was approved on January 11, 2016 for (source PDF).* ### 2011. The processing of the NAAS 2012 was completed in June 2014, but several issues were identified ### 2011. The processing of the NAAS 2012 was completed in June 2014, but several issues were identified ### National accounts and GDP - Processing of the NAAS 2012 was completed in June 2014, but several issues were identified within the data when reviewed by STA experts. - The set of GDP estimates for 2008-2013 presented serious inconsistencies. - AFRITAC West 2 and STA experts have made final adjustments to GDP figures to be released in the near future for the period 2008–13. - AFRITAC West 2 experts are providing assistance to LISGIS in compiling estimates for 2014 and 2015. - Shortcomings remain with the underlying NAAS 2012 data; it has been strongly recommended that an Economic Census be conducted with respect to 2016. This undertaking will be strongly supported by both AFRITAC West 2 and the World Bank. - A full 12-month Household Income and Expenditure Survey (HIES) was started in January 2016. The data collected to date have been processed and will be used in developing preliminary estimates of household final consumption expenditure (HFCE). ### Price statistics (CPI, PPI) and HIES implications - Current CPI: - LISGIS produces a CPI with December 2005 as the base year. - Prices are collected only in Monrovia. - Weights were last updated in 2006, based on data from neighboring countries. - Reweighting and basket updates: - AFRITAC West 2 and the EDDI2 projects are assisting LISGIS to introduce a new market basket and weights based on the six month 2014 HIES. - A December TA mission (the third during 2016) will assist LISGIS in finalizing and disseminating an updated CPI from the January 2017 CPI release onwards. - By 2019 it is expected that the weights will be further updated based on the results of the full 12-month HIES undertaken in 2016 and national price collection will be introduced. - PPI: - LISGIS does not currently compile a PPI for Liberia because this requires that an Economic Census be conducted. - It is expected that an Economic Census be conducted with respect to the year 2016 with the results becoming available during 2018. ### Government finance statistics (GFS) and public financial management - Reporting coverage: - Liberia has only reported annual GFS data up to 2013 for budgetary central government, excluding social security. - Planned improvements: - Further improvements are expected once expenditure data on donor-financed projects becomes available and a detailed analysis of extra budgetary funds has been completed. - Authorities plan to initiate expenditure data collection for aid-financed projects and will address the issue at the next stakeholder meeting with donors and Project Implementation units. - Recording and reporting challenges: - Challenges remain in capturing cash expenditure data in IFMIS; a non-cash reporting basis, based on either commitment or adjusted cash, is deemed necessary for the time being. - A September 2016 TA mission assessed the Chart of Accounts structure and produced a bridge table to GFSM 2014 classifications. - A compilation sheet was developed to facilitate ongoing GFS reporting and hands-on training was provided to more than 50 staff. - Mission found that strengthening the recording of cash expenditure would greatly contribute to the quality of fiscal reports. - Authorities expressed willingness to improve cash expenditure recording and implement data sharing agreements between the Comptroller and Accountant General’s Office and other fiscal reporting units, with particular focus on actual expenditure data. ### Monetary and financial statistics (MFS) and financial sector surveillance - MFS reporting: - Liberia does not submit monetary data using Standardized Report Forms (SRFs); it still uses the old reporting forms 10R (for the central bank sectoral balance sheet) and 20R (for banks). - Data are generally submitted with long delays; latest available period is May 2016. - STA provided technical assistance to the Central Bank of Liberia (CBL) in April 2013 to help the CBL compile MFS data using the SRFs; the introduction of SRFs has yet to materialize. - Financial sector surveillance and FSIs: - CBL has developed FSIs for deposit takers under the Japan Sub-Account (JSA) project, but these have not been sent to STA or released for publication. - CBL submits some supervisory ratios to AFR on a bilateral basis for bilateral surveillance purposes. ### External sector statistics (ESS) and balance of payments - Improvements and gaps: - CBL has improved ESS, but they are not yet adequate for surveillance. - In August 2015, CBL developed a three-year work plan to address ESS issues and improve data quality for coverage and accuracy. - Balance of payments statistics are compiled quarterly since August 2016 on a BPM6 basis. - Since early 2016 enterprise surveys have been conducted more efficiently and comprehensively. - The International Investment Position (IIP) is not compiled. - Areas needing improvement: - Primary source data, methodology, compilation practices, frequency and timeliness in data dissemination. - Coverage improvements needed in current, capital (development aid, remittances, investment income) and financial accounts (direct investment, portfolio investment, and other investment including USD cash in circulation). ### Data standards, dissemination, and STA reporting - Participation and metadata: - Participant in the enhanced General Data Dissemination System (e-GDDS). Metadata for most data categories were updated in January 2013. - ROSC and reporting: - No Data ROSC mission has been conducted. - Authorities report quarterly balance of payments data and government finance statistics for the IFS, GFSY, and BOPSY. - Liberia does not submit FSIs to STA for publication on the IMF website. ### Table of Common Indicators Required for Surveillance (selected entries) - Exchange Rates: Date of Latest Observation 8/31/2016; Date Received 10/24/2016; Frequency of Data D; Frequency of Reporting M; Frequency of Publication D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation 8/2015; Date Received 10/24/2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Reserve/Base Money: Date of Latest Observation 8/2015; Date Received 10/24/2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Broad Money: Date of Latest Observation 8/2015; Date Received 10/24/2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Central Bank Balance Sheet: Date of Latest Observation 8/2015; Date Received 10/24/2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Consolidated Balance Sheet of the Banking System: Date of Latest Observation 8/2015; Date Received 10/24/2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Interest Rates: Date of Latest Observation 8/2015; Date Received 10/24/2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Consumer Price Index: Date of Latest Observation 8/2015; Date Received 10/24/2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of Latest Observation 9/2015; Date Received 10/22/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation 9/2015; Date Received 10/22/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - External Current Account Balance: Date of Latest Observation 8/2015; Date Received 10/24/2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - Exports and Imports of Goods and Services: Date of Latest Observation 8/2015; Date Received 10/24/2016; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - GDP/GNP: Date of Latest Observation 2008; Date Received 3/1/2011; Frequency of Data A; Frequency of Reporting I; Frequency of Publication I. - Gross External Debt: Date of Latest Observation 9/2015; Date Received 10/22/2015; Frequency of Data M; Frequency of Reporting M; Frequency of Publication Q. - International Investment Position: NA across Date of Latest Observation, Date Received, Frequency of Data, Frequency of Reporting, Frequency of Publication. ### Program performance, macroeconomic outlook, and growth projections - Program context: - Supplement provides update on prior actions under the Extended Credit Facility (ECF) reviews. - Prior action to compile and develop a database of domestically-financed projects from the Ministry of Finance and Development Planning was observed. - Prior action relating to the interim report of the forensic audit of First International Bank of Liberia Limited (FIBLL) was not observed; CBL submitted an interim report prepared by an internationally reputable audit firm, outlining a work plan and schedule for key deliverables but not detailing preliminary findings in line with paragraph 47 of the MEFP. - Forensic audit timetable: - Forensic audit process is well underway with a detailed work plan including bi-weekly and monthly milestones. - Submission of a second interim report detailing preliminary findings to the CBL by end-January 2017. - Completion of the forensic audit and sharing of final results with staff by end-May 2017 is a structural benchmark for the next review. - Requests and adjustments: - Authorities request waivers of nonobservance of performance criteria for completion of the 5th and 6th reviews; and augmentation of access of 10.7 percent of quota, of which 5 percent of quota would be directed to the government budget FY2016–17 and the balance of 5.7 percent towards financing the balance of payment gap. - Authorities seek extension of the program to November 2017. - Recent program performance: - All indicative targets for end-December 2015 were met; two performance criteria for the same period were missed. - By end June 2016, three PCs were missed: floors on government revenue and net foreign exchange reserves position of the CBL, and the ceiling on CBL’s gross direct credit to the central government. - Reasons for misses: low revenue collections (particularly from mining companies); lower government sales of foreign exchange to the CBL limited private sector access to foreign exchange and CBL provided liquidity support to the financial sector. - Corrective measures: - CBL implementing a three-year financial plan and has moderated intervention in the foreign exchange market. - FY2017 budget includes a sizeable revenue package, complemented by additional measures introduced in November 2016. - Measures to reform revenue administration and build capacity for the Liberia Revenue Authority (LRA) with support from the Fund and other donors. - MFDP announced plans to cut spending on non-priority expenditures (including fuel and foreign travel), limit spending to incomplete public investment projects, and impose a moratorium on hiring. - Structural benchmarks: - Two out of nine SBs for the 5th review were met; three were completed with delays. - Four out of five SBs for the sixth review were met. - Missed SBs attributed to capacity and institutional gaps being addressed through restructuring of the Aid Management Unit in MFDP, strengthening procurement capacity, development of a crisis management framework by CBL, and infrastructure upgrades. - Risks and mitigation: - Ministry of Health implementing robust EVD surveillance system and developing personnel capacity for health emergencies; health protocols at border points and airports remain in place. - Authorities engaging development partners on budget support for health and training security personnel for elections. - Revenue-raising measures include additional sur-charges on domestic calls, taxes on tobacco and other luxury items, increase in general sales tax (GST), new fuel storage charges. - New spending cuts and restrictions announced; dependence on mining remains a risk. - Medium-term plans focus on economic diversification, including boosting agricultural production to improve food security. - Macroeconomic outlook and growth: - Economic recovery is taking longer than expected due to residual effects of EVD and lower commodity prices. - Growth for 2016 is expected to be -0.5 percent, down from an earlier projection of 2.5 percent, driven by: - Forestry sector: -0.7 percent - Mining and panning sector: -23.8 percent - Manufacturing sector: -4.9 percent - Agriculture and fisheries expanded by 6.4 percent in 2016, up from 0.7 percent. - Authorities expect annual growth to rebound to 3.2 percent in 2017, driven mainly by expansions in both gold production and the agriculture sector. - Current oil exploration efforts by a major US company commenced in mid-November 2016. - Average inflation for the year is estimated at 8.6 percent. - CBL has limited its intervention in the market to smooth out exchange rate volatility as part of reserve accumulation efforts. ### Fiscal policy, debt management, and public financial management reforms - Fiscal stance and measures: - Authorities focused on implementing approved policy measures to generate additional revenue and tighten controls on recurrent costs while protecting social spending. - Tight fiscal stance will continue through 2018. - Draft next generation public financial management action plan (2017–20) concluded and shared with stakeholders; incorporates actions to address public investment management, accountability, and fiscal decentralization. - Authorities developing a strategy for full roll-out of a Treasury Single Account (TSA) to pull all government resources for efficiency gains. - State-Owned Enterprises (SoEs): - Regular reporting on SoEs’ finances; reporting coverage improved from eight (8) to thirteen (13) SoEs. - Debt strategy: - Weak exports and economic downturn have impeded the government’s ability to contract loans for infrastructure without pushing debt levels to margins of distress. - Debt levels remain moderate under staff baseline scenario. - Authorities committed to keep debt levels sustainable by limiting loan contracting to debt-financing projects over the medium-term. - Strategy emphasizes grants and concessional financing for investment in growth-enhancing infrastructure, considering the impact of investment on growth to sustain debt levels. ### Monetary policy stance and de-dollarization efforts - Monetary policy objectives: - Monetary policy is anchored in price and exchange rate stability. - CBL adheres to implementation of its three-year financial plan (2015–17), strengthening its reserve position as envisaged under the program. - CBL has limited its intervention in the foreign exchange market to smooth out exchange rate volatility. - Constraints and policy actions: - Effectiveness of monetary policy impeded by high dollarization of the economy. - Authorities intend to take a gradual market approach to de-dollarization: - Begin with transactional de-dollarization followed by financial de-dollarization. - Actions include increasing Liberian dollar component of civil servants’ salaries, accepting more tax payments in Liberian dollars, and making more vendor payments in local currency. ### Financial sector policies, supervision, and stability measures - System soundness and NPLs: - Banking system remains capitalized and liquid, but the financial sector is shallow with elevated risks from high NPLs and low profitability. - CBL implementing a strategy to reduce NPLs: reinforced mandatory write-offs, restructuring, and high frequency recovery methods. - NPL share reduced from 19.2 percent in August 2015 to 13.5 percent as at August 2016. - Resolution and oversight: - Issue surrounding a failed bank resolved via purchase and assumption transaction by a foreign private equity group after due diligence. - Measures implemented to closely supervise the nascent bank with high frequency monitoring; CBL commissioned a forensic audit and shared the preliminary report with the Fund. - Financial sector reforms: - CBL working with the Fund to develop procedures for an emergency liquidity assistance (ELA) framework and a deposit insurance scheme. - National Legislature passed legislations adopting the Securities Market and the Central Securities Depository. - Withdrawal of corresponding banking relationships continues to pose serious challenges to trade finance, remittances, and financial inclusion. - To address AML/CFT gaps, a dedicated unit has been set up at the central bank; CBL engaging with parent jurisdictions of respondent banks and increasing participation in Financial Action Task Force (FATF) work. - In November 2016, CBL launched a Financial Sector Development Implementation Plan (FSDIP) focusing on financial inclusion, access to finance, and strengthening regulation and supervision. - Investments underway to modernize banking products and infrastructure to enhance reporting. ### Structural reforms and business climate improvements - Business climate and trade: - Authorities implementing actions to improve the business climate, including simplification of business registration procedures and establishment of a one stop shop at customs. - Liberia assented to the World Trade Organization (WTO) on July 14, 2016. - Governance and laws: - Mo Ibrahim Report for 2016 recognizes Liberia among the top most improved countries on the “Overall Governance” index. - A new petroleum law enacted to promote open and accountable management of potential oil and gas reserves. - Tax and procurement reforms: - New VAT bill under preparation for eventual implementation in 2018; current revenue code being reviewed to harmonize and implement Common External Tariff (CET). - Public Procurement Authority has standardized procurement contracts. - Infrastructure and energy: - Increase in electricity grid output by year’s end expected to reduce constraints to production. *IMF staff report content as provided in the source PDF.* ### Conclusion ### Conclusion ### Economic conditions and challenges - Liberia is emerging out of fragility, but lagging post-Ebola effects continue to permeate the core of the society. - Recovery has been delayed by the persistent impact of the commodity price decline. ### Program performance and policy stance - The authorities registered positive performance in implementing their economic program. - The authorities remain committed to strong macroeconomic policies to restore confidence and achieve robust economic recovery. ### Role of the ECF arrangement - Progress made so far has benefited from initiatives supported by the arrangement under the ECF. - The authorities look forward to the Board’s approval of its extension. *Source: _cr16392 - Conclusion* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16392.pdf_